calculating total mixed cost

As the name suggests, a mixed cost is made up of a mix of variable cost and fixed cost. A cost must have both components to be considered a mixed cost.

There are many mixed costs around us. If you look at an electric bill, most will have a fixed customer service charge and various variable charges. We recently rented a moving truck. We were charged a daily rate (fixed cost) plus a rate per mile (variable cost).

The cost formula for a mixed cost is the sum of the variable and fixed components.

Total Mixed Cost = Variable Cost + Fixed Cost

If you remember the post on variable cost, you’ll remember that the formula for total variable cost is rate x activity. Therefore, we can expand our formula for mixed cost:

Total Mixed Cost = Rate X Activity + Fixed Cost

In some books, you will see the mixed cost equation expressed as the slope equation:

y = mx + b

y = total mixed cost
m = variable rate
x = activity
b = fixed cost

Don’t let this formula scare you. It’s the same as the formula above it. While it is important to understand that you can graph cost to observe it’s behavior, don’t get overwhelmed by the slope formula. If you understand that a mixed cost has a variable and a fixed component, the formula is pretty easy.

Calculating a mixed cost

Let’s look at a few examples to see how to calculate a mixed cost.

Example #1

ACI, Inc. is looking to lease a copier. The terms of the agreement state that there will be a monthly lease fee of $99 plus a charge of $0.02 per copy. If ACI plans to make 10,000 copies next month, how much would the copier lease cost?

First let’s identify the costs in the problem and if they are variable or fixed.

The first cost mentioned is a $99 monthly lease fee. Is this cost fixed or variable? When answering this question, ask yourself if there is a cost driver. Is there any activity that makes the monthly lease fee change? The answer is no. It will be $99 for the term of the lease. Therefore it is fixed.

The other charge is $0.02 per copy. Does this cost have a cost driver? Yes. For every copy that is made, the total cost of copies increases bt $0.02. Therefore this cost is variable.

Since we have identified a variable cost and a fixed cost, the total cost of the copier lease is a mixed cost. Let’s write the cost formula for the cost of the lease.

Total Mixed Cost = Rate X Activity + Fixed Cost

Total Monthly Lease Cost = $0.02 X number of copies + $99

As we do monthly cost planning, we now have a formula to help us plan.

Now answer the question that was asked. Plug the number of copies into the formula and solve.

Total Monthly Lease Cost = $0.02 X 10,000 + $99

Total Lease Cost = $200 + $99

Total Lease Cost = $299

Example #2

ACI, Inc. is doing budget planning for next fiscal year. The company believes that it will make 150,000 copies annually on the copier it plans to lease. What is the total projected cost of the copier for the next fiscal year?

Let’s go back to our cost equation.

Total Monthly Lease Cost = $0.02 X number of copies + $99

How must we change the formula to use it for annual planning? The current formula is for monthly cost and we are now trying to plan for an annual cost. Take the fixed cost and multiply it by 12.

Total Annual Lease Cost = $0.02 X number of copies + $1,188

Now we can solve.

Total Annual Lease Cost = $0.02 X 150,000 + $1,188

Total Annual Lease Cost = $3,000 + $1,188

Total Annual Lease Cost = $4,188

Final Thoughts

When dealing with mixed costs, start by identifying your variable and fixed components. Make sure to note the period of time your fixed cost is for (monthly, quarterly, annually, etc). Next write your cost equation. Finally, plug in your level of activity and solve.

Don’t let the slope formula throw you off. Remember that a mixed cost is just the sum of it’s fixed and variable components.

Share This:


Related pages


segment margin formulahow to calculate bad debt provisionwip productionhow to compute sales revenuecalculate tax on paycheckdebit and credit journal entrieswhy assets are debitedcost of goods sold per unit formulanormal balance in accountingalaska unemployment calculatororiginal issue discount calculationaccounting for preferred stock dividendscalculate net credit salespv annuity factor tableexample of double declining balance methodfederal income tax payable journal entryhow to calculate sales revenue from balance sheetpresent value factor of annuityhow to prepare a contribution margin income statementnet income formulasformula straight line depreciationemployer paye calculatorthe balance in premium on bonds payableexample of contra entryhow to calculate declining balance methodfixed asset accounting entrieswage calculation formulareconcile cash registerunit labour cost formuladouble declining balance method examplewarranty reserve accountingincome statement from trial balanceadjusting entry depreciationallowance for bad debt accounthow to calculate cogsmedicare withholdingslifo inventory method examplepremium on bonds payable balance sheetmanagement accounting costing methodsbond premium amortization scheduleaccounting adjusting entrycalculate net pay texasfica tax rates 2014current medicare tax ratehow to calculate ending inventory using fifocalculating ending retained earningscost ratio formulawhat is double declining balance methodformula for contribution margin per unitcalculate manufacturing overheadinventory usage formulacontra asset meaningordinary annuity versus annuity duecalculate accumulated depreciationdoes income tax include social security and medicarecogs income statementthe cost of a long term asset is expensedincome tax adjusting entryfactory overhead variancepresent value table annuitywhat is straight line amortizationnetpay payrollaccount receivable asset or liabilityadjusting entries suppliesmeaning of overheadsperiodic inventory system definitioncalculate tax from paycheckdepreciation residual value calculationcalculate social security wagesdifference between perpetual inventory system and periodic inventory systemdiscount allowed journal entry