Mixed Cost
A cost that contains both a fixed component that remains constant regardless of activity and a variable component that changes in proportion to volume.
What is Mixed Cost?
A mixed cost, also called a semi-variable cost, has characteristics of both fixed and variable costs. The fixed portion does not change with the level of activity — it exists even when output is zero. The variable portion increases proportionally as activity rises. Common examples include utility bills (which have a fixed base charge plus variable consumption charges), sales staff compensation (base salary plus commission), and equipment leases with overage fees. Managers use the high-low method or regression analysis to separate mixed costs into their fixed and variable components for use in budgeting, break-even analysis, and pricing decisions.
Example
A distribution company pays a truck lease of $2,000 per month (fixed) plus $0.15 per mile driven (variable). In a month with 20,000 miles, the total mixed cost is $2,000 + ($0.15 × 20,000) = $5,000. In a month with 10,000 miles, the cost falls to $3,500.