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Chapter 20: Q6RQ (page 1119)

What is the relevant range?

Short Answer

Expert verified

The range where the variable cost per unit and fixed cost remains constant is known as the relevant range.

Step by step solution

01

Meaning of relevant range

The relevant range refers to the range in which adding new unit will does not bring change in variable cost and fixed cost per unit.

02

Example of the relevant range

Suppose a company wants to produce 100 pens. The costs related to production are as follows:

Number of pens produced

Fixed cost

Variable cost

0-50

$1,000

$0.25 per unit

51-100

$1,500

$0.45 per unit

101-150

$2,000

$0.60

Therefore, the relevant cost in the given example is 51-100 pens.

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Most popular questions from this chapter

Determining cost behavior

Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.

Units Sold 25 50 75 100

a. Total phone cost \( 150 \) 200 \( 250 \) 300

b. Materials cost per unit 35 35 35 35

c. Manager鈥檚 salary 3,000 3,000 3,000 3,000

d. Depreciation cost per unit 60 30 20 15

e. Total utility cost 400 650 900 1,150

f. Total cost of goods sold 3,125 6,250 9,375 12,500

Question: Determining fixed cost per unit

For each total fixed cost listed below, determine the fixed cost per unit when sales are 50, 100, and 200 units.

Store rent $ 5,000

Manager鈥檚 salary 3,000

Equipment lease 500

Depreciation on fixtures 250

What is a variable cost? Give an example.

What is sensitivity analysis? How do managers use this tool?

What is cost stickiness? Why do managers need to be aware of cost stickiness?
See all solutions

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