What Are Fixed, Variable, and Mixed Costs?
Costs behave differently as production volume changes. Understanding whether a cost is fixed, variable, or mixed is essential for budgeting, break-even analysis, and pricing decisions.
A fixed cost stays constant regardless of output (like rent). A variable cost changes in direct proportion to output (like raw materials). A mixed cost has both a fixed and a variable component (like a phone bill with a base fee plus per-minute charges).
Try it: interactive calculator
Step-by-step worked examples
A factory pays $5,000/month rent (fixed) and $10 per unit for materials (variable). Find total cost for 300 units.
TC = FC + (VC × Q) TC = 5,000 + (10 × 300) TC = 5,000 + 3,000 = $8,000
A phone plan costs a $20 base fee plus $0.05 per minute. Find the cost for 400 minutes.
This is a mixed cost: TC = FC + (VC × Q) TC = 20 + (0.05 × 400) TC = 20 + 20 = $40
If total cost is $12,000 at 500 units, and variable cost per unit is $8, find the fixed cost.
TC = FC + (VC × Q) 12,000 = FC + (8 × 500) 12,000 = FC + 4,000 FC = $8,000
Flashcards
Quick quiz
Q1.Which cost stays constant regardless of output?
Q2.A cost that rises directly with each unit produced is:
Q3.TC = FC + (VC × Q). If FC=$2,000, VC=$5, Q=100, what is TC?
Q4.A mixed cost example is:
The full card deck, worked steps and AI-tutor support for “What Are Fixed, Variable, and Mixed Costs?” are in Notek — study by hand before your exam.
Common mistakes
Assuming fixed costs never change at all, ever. — Correct: Fixed costs are constant within a relevant range of output, but can change if capacity changes (e.g., new lease terms).
Treating variable cost per unit as changing with volume. — Correct: Variable cost per unit stays constant; it's total variable cost that scales with volume.
Forgetting mixed costs need to be split before analysis. — Correct: Mixed costs must be separated into fixed and variable parts (e.g., via the high-low method) before use in break-even analysis.
Confusing fixed cost per unit with total fixed cost. — Correct: Total fixed cost is constant, but fixed cost per unit falls as output rises.
FAQ
What are fixed, variable, and mixed costs?
Fixed costs don't change with volume, variable costs change in proportion to volume, and mixed costs have both components.
What is the formula for total cost?
TC = FC + (VC × Q), where FC is fixed cost, VC is variable cost per unit, and Q is quantity.
What are examples of variable costs?
Raw materials, direct labor paid per unit, and sales commissions are common variable costs.
How do you calculate fixed, variable, and mixed costs in practice?
Use methods like the high-low method or regression to split mixed costs into their fixed and variable components.