Mixed Costs: Definition & Examples

Mixed Costs: Definition & Examples
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  • 0:02 Real-World Mixed Costs
  • 0:29 Mixed Cost Defined
  • 1:25 Examples
  • 2:35 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting
In this lesson, we'll look at mixed costs. We'll define variable costs and fixed costs, and we'll look at how the two are related to mixed costs. Afterward, you can test your knowledge with a brief quiz.

Real-World Mixed Costs

As the owner of a car dealership, you employ many different employees. Their responsibilities range from accountants in the finance department to the mechanics that work on the cars. But for the focus of this lesson, it will be the car salesmen that take center stage. You see, with a car salesman, you have to pay them a base salary and commission for each car that they sell. Therefore, a car salesman is a good example of a mixed cost.

Mixed Cost Defined

Why does a car salesman fit the parameters of a mixed cost? Well, a mixed cost is an expense that has both a fixed cost and a variable cost. On the one hand, a variable cost is a cost that changes with production. For our car salesman, the commission is the variable cost because when he sells more cars, he earns more commission; when he sells fewer cars, he earns less commission, and no commission may be paid at all if the salesman sells no cars. On the other hand, a fixed cost is a cost that stays the same no matter the production. These costs cannot be eliminated because they have to be paid no matter what. Take the base salary of the salesman for example. Even if the car salesman does not sell any cars, the employer must still pay him a base salary. Other examples of fixed costs include rent, insurance, and utilities that have to be paid every month.

Examples

We now know that when you have both variable and fixed costs, you get a mixed cost. Let's explore a couple of examples of mixed costs in real life to better understand the concept.

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