As the level of activity increases, a mixed cost behaves as follows:
- In total: The mixed cost will increase because it includes a variable component that rises with activity level. The fixed component remains constant, but the total mixed cost goes up due to the variable portion increasing with more activity.
- Per unit: The mixed cost per unit will decrease because the fixed portion of the cost is spread over more units as activity increases, reducing the fixed cost allocated to each unit. Although the variable cost per unit remains constant, the overall mixed cost per unit declines because of the fixed cost dilution.
This behavior can be summarized by the equation y=a+bxy=a+bxy=a+bx, where yyy is the total mixed cost, aaa is the fixed cost component, and bbb is the variable cost per unit multiplied by the activity level xxx. As xxx increases, total cost yyy increases, but cost per unit yx\frac{y}{x}xy decreases due to spreading the fixed cost over more units
