Mixed Costs
Definition and explanation of mixed or semi variable cost:
A mixed cost is one that contains both variable and fixed cost elements. Mixed cost is also known as semi variable cost. Examples of mixed costs include electricity and telephone bills. A portion of these expenses are usually consists line rent. Line rent normally is fixed for each month. Variable portion consists units consumed or calls made. The relationship between mixed cost and level of activity can be expressed by the following equation or formula:
Y = a + bX
In this equation, * Y = The total mixed cost * a = The total fixed cost * b = The variable cost per unit * X = The level of activity
The equation makes it very easy to calculate what the total mixed cost would be for any level of activity within the relevant range For example, Suppose that the company expects to produce 800 units and company has to pay a fixed cost of $25,000 and a variable manufacturing cost is $3.00 per unit. The total mixed cost would be calculated as follows:
Y = a + bX
Y = $25,000 + ($3.00 × 800 units)
= $27,400
A characteristic of mixed cost that needs to be understood is that we usually have to separate fixed and variable components of the total mixed cost.
The analysis of mixed costs:
In practice the mixed costs are very common. For example the cost of providing X-ray services to patients is a mixed cost. There are substantial fixed costs for equipment depreciation and forsalaries for radiologist and technicians, but there are also variable costs for X-ray film, power and supplies. Maintenance costs of machineries and plants are also mixed costs. Companies incur costs for renting maintenance facilities and for keeping skilled mechanics on the payroll, but the costs of replacement parts, lubricating oil, tires, and so forth are variable with respect to how often and how far the machineries and plants are used.
The fixed portion of the mixed cost represents the basic, minimum cost of just having
A mixed cost is one that contains both variable and fixed cost elements. Mixed cost is also known as semi variable cost. Examples of mixed costs include electricity and telephone bills. A portion of these expenses are usually consists line rent. Line rent normally is fixed for each month. Variable portion consists units consumed or calls made. The relationship between mixed cost and level of activity can be expressed by the following equation or formula:
Y = a + bX
In this equation, * Y = The total mixed cost * a = The total fixed cost * b = The variable cost per unit * X = The level of activity
The equation makes it very easy to calculate what the total mixed cost would be for any level of activity within the relevant range For example, Suppose that the company expects to produce 800 units and company has to pay a fixed cost of $25,000 and a variable manufacturing cost is $3.00 per unit. The total mixed cost would be calculated as follows:
Y = a + bX
Y = $25,000 + ($3.00 × 800 units)
= $27,400
A characteristic of mixed cost that needs to be understood is that we usually have to separate fixed and variable components of the total mixed cost.
The analysis of mixed costs:
In practice the mixed costs are very common. For example the cost of providing X-ray services to patients is a mixed cost. There are substantial fixed costs for equipment depreciation and forsalaries for radiologist and technicians, but there are also variable costs for X-ray film, power and supplies. Maintenance costs of machineries and plants are also mixed costs. Companies incur costs for renting maintenance facilities and for keeping skilled mechanics on the payroll, but the costs of replacement parts, lubricating oil, tires, and so forth are variable with respect to how often and how far the machineries and plants are used.
The fixed portion of the mixed cost represents the basic, minimum cost of just having