Mixed Costs (This should be done in excel)

A mixed cost contains both variable and fixed cost elements. Mixed costs are also known as semivariable costs. To continue the Nooksack Expeditions example, the company incurs a mixed cost called fees paid to the state. It includes a license fee of $25,000 per year plus $3 per rafting party paid to the state's Department of Natural Resources. If the company runs 1,000 rafting parties this year, then the total fees paid to the state would be $28,000, made up of $25,000 in fixed cost plus $3,000 in variable cost. Exhibit 2-5 depicts the behavior of this mixed cost.

Even if Nooksack fails to attract any customers, the company will still have to pay the license fee of $25,000. This is why the cost line in Exhibit 2-5 intersects the vertical cost axis at the $25,000 point. For each rafting party the company organizes, the total cost of the state fees will increase by $3. Therefore, the total cost line slopes upward as the variable cost of $3 per party is added to the fixed cost of $25,000 per year.

Because the mixed cost in Exhibit 2-5 is represented by a straight line, the following equation for a straight line can be used to express the relationship between a mixed cost and the level of activity:

EXHIBIT 2-5

Mixed Cost Behavior

Mixed Costs

A mixed cost contains both variable and fixed cost elements. Mixed costs are also known as semivariable costs. To continue the Nooksack Expeditions example, the company incurs a mixed cost called fees paid to the state. It includes a license fee of $25,000 per year plus $3 per rafting party paid to the state's Department of Natural Resources. If the company runs 1,000 rafting parties this year, then the total fees paid to the state would be $28,000, made up of $25,000 in fixed cost plus $3,000 in variable cost. Exhibit 2-5 depicts the behavior of this mixed cost.

Even if Nooksack fails to attract any customers, the company will still have to pay the license fee of $25,000. This is why the cost line in Exhibit 2-5 intersects the vertical cost axis at the $25,000 point. For each rafting party the company organizes, the total cost of the state fees will increase by $3. Therefore, the total cost line slopes upward as the variable cost of $3 per party is added to the fixed cost of $25,000 per year.

Because the mixed cost in Exhibit 2-5 is represented by a straight line, the following equation for a straight line can be used to express the relationship between a mixed cost and the level of activity:

EXHIBIT 2-5

Because the variable cost per unit equals the slope of the straight line, the steeper the slope, the higher the variable cost per unit.

In the case of the state fees paid by Nooksack Expeditions, the equation is written as follows:

This equation makes it easy to calculate the total mixed cost for any level of activity within the relevant range. For example, suppose that the company expects to organize 800 rafting parties in the next year. The total state fees would be calculated as follows:

Because the variable cost per unit equals the slope of the straight line, the steeper the slope, the higher the variable cost per unit.

In the case of the state fees paid by Nooksack Expeditions, the equation is written as follows:

This equation makes it easy to calculate the total mixed cost for any level of activity within the relevant range. For example, suppose that the company expects to organize 800 rafting parties in the next year. The total state fees would be calculated as follows: