Relevant_Range-1 - to 50,000 units. Within this relevant...

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Relevant Range The range of activity within which assumptions about variable and fixed cost behavior are valid. The specified range of activity over which a variable cost per unit remains constant or a fixed cost remains fixed in total ; it is generally assumed to be the normal operating range of the organization . The upper and lower levels of activity within which the business expects to be operating within the short-term planning horizon (the budget period). Relevant range is the volume of activity, over which cost behavior stays valid. Example Friends Company can produce from 10,000 to 50,000 valves per year. So, the relevant range for Friends Company is the range of normal activity from 10,000
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Unformatted text preview: to 50,000 units. Within this relevant range all fixed costs, such as rent, equipment depreciation, and administrative salaries remain constant . If Friends Company decides to produce more valves, they have to hire additional staff and rent more equipment , which will result in an increase of fixed costs . On the contrary, if the production level is reduced, Friends Company has to reduce staff and rental expenses , so fixed costs will decrease . Note: See slide 16 (Ch. 6 Presentation A) & slide 14, 22 26 (Ch. 6 Presentation B)....
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