Mixed Costs
Definition: Costs containing both variable and fixed components.
Also called: semi-variable costs
Structure
Examples
| Cost | Fixed Component | Variable Component |
|---|---|---|
| Sales staff wages | Base salary | Commission per sale |
| Utilities | Base service charge | Per-unit consumption |
| Cell phone plan | Monthly fee | Per-minute overage |
| Maintenance | Scheduled maintenance | Usage-based repairs |
Why It Matters
For planning (CVP analysis, budgeting), you need to separate the fixed and variable portions.
A $50,000 annual cost might be:
- $30,000 fixed + $20,000 variable → behaves differently than
- $10,000 fixed + $40,000 variable
Same total, different predictions for volume changes.
High-Low Method (Quick Separation)
| Step | Formula |
|---|---|
| 1. Variable rate | (High cost − Low cost) ÷ (High activity − Low activity) |
| 2. Fixed component | Total cost − (Variable rate × Activity) at either point |
Example
High: 10,000 units, $80,000 cost
Low: 4,000 units, $50,000 cost
Variable rate = ($80,000 − $50,000) ÷ (10,000 − 4,000) = $5/unit
Fixed = $80,000 − ($5 × 10,000) = $30,000
Mixed cost formula: $30,000 + $5 per unit
North: Where this comes from
- Variable vs Fixed Costs (mixed = combination of both)
- Cost Classification Framework (cost behavior axis)
East: What opposes this?
- Pure Variable Costs (no fixed component)
- Pure Fixed Costs (no variable component)
South: Where this leads
- Cost Estimation Methods (regression, high-low, scatter plot)
- Cost-Volume-Profit Analysis (needs separated components)
West: What's similar?
- Step Costs (also not purely fixed or variable)
- Two-Part Tariffs (pricing: fixed fee + per-unit charge)