Relevant range

Definition

The relevant range is the span of activity levels within which specific cost behaviors are valid. Outside this range, fixed and variable cost estimates may not hold true.

5 Must Know Facts For Your Next Test

1. Within the relevant range, fixed costs remain constant in total.
2. Variable costs per unit remain constant within the relevant range.
3. Outside the relevant range, both fixed and variable costs can change unpredictably.
4. The concept of the relevant range is crucial for accurate cost-volume-profit analysis.
5. It is used to ensure that cost estimations and decisions are based on realistic activity levels.

Review Questions

• What happens to fixed costs within the relevant range?
• Why is it important to consider the relevant range when performing a cost-volume-profit analysis?
• What could cause costs to behave differently outside of the relevant range?

Related terms

Fixed Costs:

Costs that do not change in total with changes in activity level within the relevant range.

Variable Costs:

Costs that vary directly with changes in activity level within the relevant range.

Contribution Margin:

The amount by which sales revenue exceeds total variable costs.