Asked by Mariia Dublevska on Jun 09, 2024
Verified
Define the term 'relevant range' and explain its importance to understanding cost behaviour.
Relevant Range
The range of activity within which the assumptions about fixed and variable cost behaviors hold true.
Cost Behaviour
The manner in which a cost changes as the related activity level changes, classified into fixed, variable, and mixed costs.
- Define and explain the relevance of the 'relevant range' in cost behavior.
Verified Answer
ID
Isabella DarrahJun 11, 2024
Final Answer :
The relevant range is the range of activity within which management expects the organisation to operate. This can be based on experience and/or sales projections.
The reason that this term is important is because management need not concern itself or waste precious time with extremely high or low levels of activity that are unlikely to occur. Statistical measures such as regression also limit the scope to an organisation's relevant range.
The reason that this term is important is because management need not concern itself or waste precious time with extremely high or low levels of activity that are unlikely to occur. Statistical measures such as regression also limit the scope to an organisation's relevant range.
Learning Objectives
- Define and explain the relevance of the 'relevant range' in cost behavior.