What is a relevant range?

What is a relevant range?

The relevant range refers to a specific activity level that is bounded by a minimum and maximum amount. Within the designated boundaries, certain revenue or expense levels can be expected to occur. Outside of that relevant range, revenues and expenses will likely differ from the expected amount.

What is relevant range example?

Relevant Range: The relevant range is the range of activity (e.g., production or sales) over which these relationships are valid. For example, if the factory is operating at capacity, increasing production requires additional investment in fixed costs to expand the facility or to lease or build another factory.

How do you determine relevant range?

With variable costs then, the relevant range will be the range where the cost of adding one more, will be the same as the last. In this example, from 0-100 widgets, each additional widget will add $1 in cost to our direct materials. Once we go above 100, we are outside of the relevant range.

What is relevant range and why is it important?

Why is relevant range important? Relevant range is important because if you make the assumption that all of your costs will remain constant, whether they are fixed or variable, you may make errors on your projections.

What is the relevant range quizlet?

The relevant range is the range of activity over which a company expects to operate during the year.

What does the term relevant range mean quizlet?

8 Reviews. The term “relevant range” as used in cost accounting means the range over which. A. relevant costs are incurred.

Which of the following is true about relevant range?

Answer: a) Total fixed costs will not change Explanation: The relevant range is the level of activity wherein total fixed costs and variable cost… See full answer below.

What will result from an increase in the activity level within the relevant range?

Answer and Explanation: An increase in the activity level within the relevant range results in b) a decrease in fixed costs per unit.

Which of the following best describes the concept of relevant range?

The correct answer to this question is c) The relevant range is the range of output over which cost assumptions are valid.

What does a high degree of operating leverage mean?

A high degree of operating leverage indicates that a company is likely to experience volatility in its earnings with a change in its sales because it has a large proportion of fixed costs in its total costs.

Which is better high or low degree of operating leverage?

Generally speaking, high operating leverage is better than low operating leverage, as it allows businesses to earn large profits on each incremental sale. Having said that, companies with a low degree of operating leverage may find it easier to earn a profit when dealing with a lower level of sales.

What is operating leverage and how does a company decrease its operating leverage?

Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.