Mixed Costs

Sandra owns Galaxy Bakers, a small neighborhood bakery.

Each month, she reviews her expenses, which include fixed, variable, and mixed costs, to understand how they change with production.

Fixed costs, such as rent and staff salaries, remain constant regardless of the output she produces.

Variable costs, such as flour and sugar, change directly with output.

Mixed costs, or Semi-Variable costs, have both fixed and variable components like an electricity bill with a base charge plus usage charges, or a phone plan with fixed costs and extra charges if usage exceeds the plan.

Sandra is reviewing her electricity bill to understand how the fixed charge and usage costs add up.

Even when the bakery is closed, she pays a fixed charge for basic lighting and refrigeration.

But as production increases, the bill rises because the equipment uses more electricity.

This combination results in a mixed cost, also called a semi-variable cost.

By understanding mixed costs, Sandra can separate their fixed and variable parts, making it easier for Galaxy Bakers to budget effectively, control expenses, and forecast profits accurately.