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Unformatted text preview: Jennifer Yoder 2 Apr 11 5:20 AM MST INITIAL RESPONSE/ Jennifer Yoder Why is it necessary for a company to specify a relevant range of activity when making assumptions about cost behavior? To properly identify, analyze, and use cost behavior information, a time frame must be specified to indicate how far into the future a cost should be examined and a particular range of activity must be assumed. The assumed range of activity that reflects the companys normal operating range is referred to as the relevant range. Within the relevant range, the two extreme cost behaviors are variable and fixed. (Raiborn, Reaction to Changes in Activity, 2011, 2009) The cost line slopes upward at a given rate until a volume is reached at which the unit cost becomes fairly constant. Within this relevant range, the firm experiences stable effects on costs such as discounts on material prices and worker skill and productively. Beyond the relevant range, the slope becomes quite steep as the firm enters a range of activity in which...
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This note was uploaded on 07/16/2011 for the course COST ACCOU 410 taught by Professor David during the Fall '10 term at Kaplan University.
- Fall '10