Which cost components are included in a mixed cost?

Which cost components are included in a mixed cost?

• A. Fixed cost and variable cost
• B. Fixed cost only
• C. Variable cost only
• D. Sunk costs

Answer: (A)

A mixed cost contains both a fixed component and a variable component. That means there’s a base amount that does not change with activity, plus an additional amount that varies in direct proportion to the level of activity. The total cost can be thought of as fixed plus variable: total cost = fixed component + (variable rate × activity). That’s why choosing the option that includes both a fixed cost and a variable cost is correct. For example, a utility bill might have a base monthly charge plus charges per unit produced; the base is fixed, the per-unit charges are variable. A fixed cost only would not change with activity, so it wouldn’t be mixed. A variable cost only would vary with activity without a constant base. Sunk costs are past costs and not part of the ongoing cost behavior you’re modeling.

A mixed cost contains both a fixed component and a variable component. That means there’s a base amount that does not change with activity, plus an additional amount that varies in direct proportion to the level of activity. The total cost can be thought of as fixed plus variable: total cost = fixed component + (variable rate × activity).

That’s why choosing the option that includes both a fixed cost and a variable cost is correct. For example, a utility bill might have a base monthly charge plus charges per unit produced; the base is fixed, the per-unit charges are variable.

A fixed cost only would not change with activity, so it wouldn’t be mixed. A variable cost only would vary with activity without a constant base. Sunk costs are past costs and not part of the ongoing cost behavior you’re modeling.