Understanding Fixed and Mixed Costs: Analysis and Methods

FIXED COST

Total Fixed Cost

Fixed costs are costs that do not change in total despite volume activity changed. The picture of the total fixed cost reaction to the volume of activity can be shown on graphic 2.4.

Tipe Fixed Cost

Tipe fixed cost terdiri atas: (1) Committed Fixed Cost dan (2) Discretionary Fixed Cost.

That is a cost that cannot be eliminated at all even though the company's operations discontinued, for example are: depreciation expenses, property insurance, management salary expenses, and employee.

These costs are associated with long-term investments, such as asset ownership still,

Number of Motorcycle Products

• Discretionary Fixed Cost

Namely costs that can be eliminated if management does not want it, costoh: costs advertising, public relations costs, management development costs. These costs arise from decisions short term (annual decision) management so it is also called managed fixed cost.

MIXED COST

Mixed costs are costs that change disproportionately because of changes activity volume. This disproportionate change is due to mixed costs there is a variable cost element and a fixed cost element, this causes this cost to be mentioned as well semivariable cost.

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Examples of mixed costs such as: machine maintenance costs as shown with the following graph:

Number of machine hours

When the graph above is presented in tabular form, the change in machine maintenance costs based on changes in the volume of machine activity are as follows:

Based on the disproportionate changes above, it is difficult to do predict the cost of maintaining the machine if the machine will be employed for 500 hours.

For To help in predicting the above costs, it is necessary to separate the variable parts cost and how much part of the fixed cost in the mixed cost. For this separation, mixed cost analysis was carried out which includes three types of methods, namely:

1. The High-Low Method
2. The Scattergraph Method
3. The Least-Square Method

THE HIGH-LOW METHOD

Mixed cost analysis with this method observes the costs that occur at 2 points, namely point highest activity and lowest activity point. The difference in costs at the 2 points is then divided with the difference in activity to get variable cost rates. Example:

The highest and lowest activities from the data table above are as follows: