Question

On the basis of managerial accounting describe the term Relevant Range. Why is it important to stay within the relevant range when estimating costs??

Answer 1

Relevant range is the range of level of output in which the behavior of costs does not change. On the basis of behavior, costs are divided into 2 types: Variable and fixed

Variable cost is the cost which changes with the change in level of output and fixed costs are the costs which remains fixed in total

These assumptions are valid only when operating within the relevant range

Hence, it is very important to stay within the relevant range when estimating costs otherwise estimates might not be right