Question

TB MC Qu.5-33 (Static) A mixed cost: A mixed cost Multiple Choice is fixed over a wider range of activity than a step cost. is a fixed cost over the relevant range and a variable cost everywhere else. contains both fixed and variable components. always increases on a per unit basis.

Answer 1

Mixed cost is also known as semi-variable cost or semi-fixed cost.

A mixed cost is a cost that contains both a fixed cost component and a variable cost component. It is important to understand the mix of these elements of a cost, so that one can predict how costs will change with different levels of activity. Typically, a portion of a mixed cost may be present in the absence of all activity, in addition to which the cost may also increase as activity levels increase. As the level of usage of a mixed cost item increases, the fixed component of the cost will not change, while the variable cost component will increase. The formula for this relationship is:

Y = a + bx

Y = Total cost

a = Total fixed cost

b = Variable cost per unit of activity

x = Number of units of activity