Mixed Cost – What is it, Definition and Concept

A mixed cost has a fixed and a variable component; that is, it cannot be definitively eliminated. At the same time, it increases or decreases as the company's production level rises or falls, respectively.

 

To understand it in another way, the mixed cost has an invariable part and another that can rise or fall depending on the sales or production achieved.

 

At this point, we must first recall the concept of variable cost. This is the one that fluctuates according to the volume of business. If there is no economic activity, there is no variable cost.

 

An example of a variable cost might be the amount of raw material that a factory requires as an input to produce its commodity. The higher the demand from your customers and the more units you have to produce, the more raw material you must buy.

 

Instead, a cost or fixed cost is inescapable. This means that it is independent of the level of production. Whether the firm produces 100 or 0 units, it still has to incur the fixed cost.

 

An example of a fixed cost can be the company's monthly rent for the office or premises that it uses for its activity.

 

Likewise, we must define what cost means. This is, very briefly, the consumption of factors of production for the development of a good or service.

 

Characteristics of a Mixed cost

 

We can summarize the following characteristics of a mixed cost:

 

• It has a fixed and variable component.
• Some of that cost is unavoidable.
• Another part of the mixed cost varies according to the volume of activity of the company.
• It can also be called semi-variable cost.
• You can not only apply to the costs of a business but those of a person. For example, a mobile phone plan may have fixed and variable rates. Thus, it may be that the user has several minutes that he can consume. However, if he exceeds them, he will have to pay an additional fee for the excess. The latter would be the variable component.

Example

 

The clearest example of mixed cost is perhaps that of a salesperson who has a base salary. However, he also receives a commission for every sale he makes.

 

In other words, in this case, for the company, the employee's remuneration is a mixed cost because there is a fixed part (the base salary that must or must be paid) and another variable component (which will depend on the efficiency of the seller).