Legal Definitions - mixed cost

A mixed cost is a type of expense that contains both a fixed component and a variable component. This means that part of the cost remains constant regardless of the level of activity, while another part changes in direct proportion to the level of activity.

• Example 1: A Mobile Phone Plan

  Imagine a mobile phone plan that charges a flat monthly fee of $30, which includes 10 GB of data. For any data usage beyond 10 GB, there's an additional charge of $5 per extra GB. In this scenario, the $30 monthly fee is the fixed component because it must be paid every month, regardless of how much data is used (as long as it's within the 10 GB limit). The additional $5 per GB for exceeding the data limit is the variable component, as it only incurs if more data is consumed and increases directly with the amount of extra data used. The total phone bill is a mixed cost because it combines these two elements.

• Example 2: A Car Rental Agreement

  Consider a car rental service that charges a daily base rate of $40, plus an additional $0.20 for every mile driven. The $40 daily rate is the fixed component; it's a guaranteed charge for each day the car is rented, irrespective of how far it's driven. The $0.20 per mile is the variable component, as this cost directly increases or decreases based on the total mileage accumulated during the rental period. The overall cost of renting the car for a day is a mixed cost, combining the fixed daily charge with the variable mileage charge.

• Example 3: A Subscription Box Service with Usage Fees

  A specialized online learning platform offers a monthly subscription for $25, which grants access to a basic library of courses. However, premium courses or one-on-one tutoring sessions are available for an additional fee per session. Here, the $25 monthly subscription is the fixed component, paid consistently each month for basic access. The charges for premium courses or tutoring sessions are the variable component, as these costs only arise if the subscriber chooses to use these additional services, and the total variable cost depends on how many such sessions they purchase. The total amount a subscriber pays each month is a mixed cost.