Question

Which of the following would probably be a mixed cost?

1) Rent for a factory
2) Direct labor cost
3) Electricity bill for a manufacturing plant
4) Advertising expenses

Answer 1

The electricity bill for a manufacturing plant is likely a mixed cost, featuring both fixed and variable components depending on usage, unlike rent, direct labor, and advertising expenses, which are typically fixed costs.

Step-by-step explanation:

In the context of costs associated with operating a business, mixed costs consist of both fixed and variable components. The fixed component is constant regardless of the level of output, while the variable component fluctuates with the level of production or activity. Given the options, an electricity bill for a manufacturing plant is likely a mixed cost, as there is usually a base charge (fixed component) and a variable charge that depends on consumption (variable component).

Rent for a factory or direct labor cost is typically considered a fixed cost because these are not directly tied to production levels. Advertising expenses are also generally fixed, although exceptions can exist. In contrast, electricity is consumed as production scales up or down, causing the cost to vary with production volume, which characterizes a mixed cost.