When speaking of mixed cost, the term “fixed” refers to a certain level of cost, which is determined prior to any manufacturing activity. It can also refer to a certain level of value that is already determined at the time of contract award, but is not specified in the pricing structure of the contract. The concept of mixed cost is most often employed in what is known as “block buying”, wherein a company obtains components on the same order in large numbers, for example, and must then mix and match products in accordance with manufacturing capacity and individual customer requirements. However, this flexibility is also the reason why mixed cost is so frequently confused with fixed cost. In a pure case of fixed price, the costs of manufacturing a given product are clearly defined at the time of contract award, and there is no room for variable costs or even significant deviations from these costs in any way. The reason for why mixed cost is frequently confused with the fixed cost is that they are often implemented in what is called a “bid” auction environment, in which companies submit specific price ranges and order sizes to a contract provider.
What is mixed cost, however, is not necessarily a set price in the same manner that what is fixed cost is. Instead, what is mixed cost is the combination of costs that an inventor or manufacturer must incur in order to create a product and then license its intangible property – such as market knowledge, design know-how, or expertise – to a licensed firm. There are two main categories under which mixed cost falls: direct cost and indirect cost. A patented invention, for example, may receive direct cost from licensed intellectual property owners; and indirect costs, which are passed along to customers or reduced by profits and incentives to the original inventor.
Indirect costs are what is mixed cost when a company obtains certain tangible assets on the basis of future contract activity. Contract activities include the implementation of a product or technology, research and development, and marketing or advertising efforts. The total cost of these activities is termed fixed price. However, the nature of a patent and subsequent sale of the underlying property also enters into the mix. When what is mixed cost is referred to as fixed price, it refers to what is actually paid for the product or technology.
While there are many variables that can affect what is mixed cost, two major contributors to its meaning are price and time. Invention costs typically include fixed fees paid to the inventor and licensing fees paid to the patent office. Some patent offices allow in-licensing of the inventions themselves, in exchange for paying a royalty upfront. This is referred to, in legal terms, as the invention cost.
Inventor cost refers to the time it takes to develop a new product. This is the most significant cost component of an invention. The time spent researching and testing a product, then modifying and making changes, then processing final packaging and shipping of the finished product all adds up to an inventor’s expense. These costs are deducted from the net invention cost, after all direct expenses have been accounted for.
Time is another factor in what is mixed cost. Time can be considered a variable cost. The time it takes to manufacture a product from start to finish, for example, may add a percentage to the overall product cost. It may also mean that the time it takes to send the product to a distributor for final sales is a separate charge.
Mixed cost accounting is a combination of cost analysis and costing. Costing is the process of evaluating the costs of an invention. Analysis is done on the basis of present day prices, patent ages, anticipated sales, and profit margins. When what is mixed cost is used in cost accounting, an inventor only pays for those portions of the project that adds the highest percentage to his total expenses. This results in a more accurate picture of the true cost of the invention.
Mixed cost what is a good way to keep track of the cost of your invention. It eliminates “black and white” costs from the equation, like so many other cost accounting measures. By doing this, you are not overspending on an invention, but instead are accurately and fairly estimating how much it will cost to complete the project. If your goal is to get an accurate cost estimate for your invention, what is mixed cost analysis is a good way to go. If you would like to discuss this with a qualified accountant or business professional, you may want to consider asking your school for their assistance with what is mixed cost analysis.