It is necessary to separate Mixed Cost into its variable and
fixed components so that appropriate cost behaviour can be
ascertained.
This is essential because of different unique characteristics
of Fixed and Variable Costs.
Variable Cost remains same ‘per unit’ BUT changes in ‘totality’
with the change in level of activity.
Fixed Cost changes ‘per unit’ BUT remains same in ‘totality’
with a change in level of activity.
Variable costs are very much relevant cost for decision making
while Fixed Cost can be ignored.
Mixed Cost contains elements of both – fixed and variable cost,
and hence proper separation of Mixed cost into variable and fixed
components is very much necessary to facilitate proper decision
making.