Which statement best describes the relevant range in cost behavior?

Which statement best describes the relevant range in cost behavior?

• A. The entire production capacity.
• B. The range where variable costs per unit remain roughly constant.
• C. The range where fixed costs vanish.
• D. The range where total costs are fixed.

Answer: (B)

In the relevant range, cost behavior is predictable: the total variable cost changes in direct proportion to activity, so the variable cost per unit stays approximately constant. This makes budgeting and analysis straightforward because you can assume a linear relationship between activity and total cost within that range. Outside the relevant range, per-unit variable costs can shift and the cost pattern may become nonlinear due to capacity limits or other constraints. At the same time, fixed costs stay constant in total within the relevant range, but their per-unit cost falls as activity rises. The other statements don’t fit this idea: it isn’t about the entire production capacity, fixed costs don’t vanish within the relevant range, and total costs aren’t fixed throughout the range due to the variable portion.

In the relevant range, cost behavior is predictable: the total variable cost changes in direct proportion to activity, so the variable cost per unit stays approximately constant. This makes budgeting and analysis straightforward because you can assume a linear relationship between activity and total cost within that range. Outside the relevant range, per-unit variable costs can shift and the cost pattern may become nonlinear due to capacity limits or other constraints. At the same time, fixed costs stay constant in total within the relevant range, but their per-unit cost falls as activity rises. The other statements don’t fit this idea: it isn’t about the entire production capacity, fixed costs don’t vanish within the relevant range, and total costs aren’t fixed throughout the range due to the variable portion.