Question 1. True to their name, mixed costs have components of both fixed and variable costs. They have a fixed based cost regardless of your activity level and they have a piece that varies based on your level of production. An example would be an x-ray machine. There is a fixed cost piece for the depreciation and technician salary. There is also a variable piece for film, power, and supplies that are directly proportional to the number of uses.
The fixed cost piece is for the capability to perform a function and the variable cost is the cost to perform that function.
As a manager, how would you budget and plan for mixed costs?
Question 2. You make a great point and I like how you noted that "fixed costs can be adjusted over a period of time; however, the change in fixed costs is not related to production". That is an important concept to keep in mind when we talk about fixed costs. When we talk about fixed costs we are talking about costs that are fixed for the period that is being examined and are not directly impacted on production levels. It would not be unheard of or uncommon to have fixed costs that change every month. That is one of the reasons that budgeting is an important tool for running a profitable business. It is important to know you fixed costs for any given period. Related to fixed costs are fixed costs per unit.
How would you describe fixed costs per unit and why would this information be helpful for a manager to know?
Question 3. What do you see as the distinction between costs and expenses?