Mixed Expenses (Semi-variable Expenses)
Overheads that are fixed in the total volume of activity but variable when calculated as per unit are called fixed overheads.
Variable overheads are the expenses that are varying in total. However, these overheads remain constant when they are calculated in per unit.
Mixed expenses are the expenses that are both set and variable in nature. These expenses are also called semi-variable expenses. These expenses have a fixed part in their composition in addition to the variable portion. The fixed fraction of the cost is the expense that needs to be paid regardless of the level of activity. This cost is going to incur anyway even if you manage to avoid the variable portion of this cost.
However, the variable portion of the cost depends on the level of the activity performed. The variable expenses in mixed expenses can be controlled since these costs are directly proportional to the level of activity performed.
Following are some examples in order to understand the concept of mixed expenses in a clearer manner. Consider the telephone bills as an example. The amount of the line rent is constant regardless of the whether you use your telephone or not. However, as the use of telephone increases, the bills of the telephone also increase. In this example, the line rent of the telephone is the fixed cost whereas the calls you make and their charges are the variable cost as this depends on the level of activity performed.
Similarly, if the salary of the employee includes a bonus, this will be an example of mixed expenses. Since salaries are considered as overhead expenses this example is the best to understand the concept of mixed overheads. If a company is paying an employee $2000 per month and also announces a bonus of 3% on the entire sale he makes, and then the $2000 that he is paid every month is the fixed overhead and the 3%, he is paid on all the sale he makes is the variable overhead.
Semi-variable costs can be expressed with the help of following formula:
Y = a + bX
Where Y = total mixed cost
a = total fixed cost
b = variable costs per unitx = levels of the activity
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software