Mixed cost

Written by Fmi.Online Friday January 6, 2023
A mixed cost is an expense that has attributes of both fixed and variable costs. In other words, it’s a cost that changes with the volume of production like a variable cost and can’t be completely eliminated like a fixed cost.

Explanation :

  Wage costs for employees who are paid a monthly salary plus commissions are a good example of mixed costs. This is a common compensation package for salesmen and sales reps. They usually receive a small base salary and commissions based on how many sales they make during the period. The monthly salary is a fixed cost because it can’t be eliminated. Even if the salesperson doesn’t sell anything during the month, the company still has to pay the base salary. The commission, on the other hand, acts more like a variable cost  because it’s based on the productivity of the employee. The more the employee sells the greater the sales commission expense becomes. The company can eliminate this expense altogether if it doesn’t sell anything for the month.

In a nutshell :

  • A semi-variable cost, also known as a semi-fixed cost or a mixed cost, is a cost composed of a mixture of both fixed and variable components. 
  • Costs are fixed for a set level of production or consumption, and become variable after this production level is exceeded.
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