Scribd
Upload
15 views2 pages

Relevant Range

Uploaded by

Chloe Anne
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
15 views2 pages

Relevant Range

Uploaded by

Chloe Anne
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Relevant Range

Nonlinear Behavior of Variable and Fixed Costs


In the previous two slides, the assumption was made that the total variable costs and
total costs were linear, and straight lines were used to represent both types of costs. A straight-
lien relationship does not usually exist for variable costs throughout the entire range of activity.
In the real world, the relationship between variable cost behavior and changes in the activity
level is often curvilinear, as shown in part (a). The behavior of total fixed costs through all
levels of activity is shown in part (b).

Linear Behavior Within Relevant Range


Operating at zero or at 100% capacity is the exception for most companies. Companies
usually operate over a narrower range – such as 40-80% of capacity. The relevant range of the
activity is the range over which a company expects to operate during a year.
Within this range, as shown in the diagrams, a straight-line relationship normally exists
for both fixed and variable costs.

You might also like