What are mixed costs?

Mixed costs are defined as costs that contain both fixed and variable components. This means that part of the cost remains constant regardless of the level of production or activity, while another part fluctuates based on the volume of production or use. For example, a utility bill for a factory may have a fixed charge that remains the same every month (fixed component) plus additional charges based on usage (variable component).

Understanding mixed costs is crucial for decision-making because they can affect profitability and budgeting in different ways depending on the level of production. Analyzing the behavior of mixed costs helps in forecasting and managing expenses more effectively.

The other options do not capture the nature of mixed costs accurately, as they either describe costs that are only fixed, only variable, or unpredictable, none of which include the characteristic of having both fixed and variable components.