IBM provides information technology services using mixed costing. In December 2027, the company incurs the following costs related to its service operations:

• Fixed Costs: $80 million
• Variable Costs: $40 million
• Semi-Variable Costs: $25 million

Required:

• Classify each cost as fixed, variable, or semi-variable.
• Allocate operating costs to each service division using the direct allocation method.
• Determine the cost per service unit assuming 1 million units delivered.
• Analyze the cost structure of mixed costing in information technology services.
• Discuss the advantages and challenges of using mixed costing in service industries.