Question

Which costs are impacted by relevant range?

Answer 1

Relevant range is a range of activity of production or sales with a minimum and maximum limit.

Within the relevant range of activity, the total fixed costs are constant and do not change. However, the per unit fixed cost will vary according to the level of activity. For example, for a relevant range of 10,000 units to 50,000 units and fixed costs of $100,000, the total fixed costs will remain constant at $100,000 at all levels of activity within the relevant range. However, if the activity level is 20,000 units, the per unit fixed cost will be $5 ($100,000/20,000 units) while if it is 40,000 units, the per unit fixed cost will be $2.50 ($100,000/40,000 units).

The per unit variable cost is constant within the relevant range whereas the total variable costs will vary depending upon the actual level of activity. For example, for the same relevant range as above and with a variable cost of $10 per unit, the total variable cost will be $200,000 (20,000 units x $10) at 20,000 units but will be $400,000 (40,000 units x $10) at 40,000 units though the per unit variable cost remains constant at $10.