Why is identification of a relevant range important?
A) It is required under GAAP.
B) Cost behavior outside of the relevant range is not linear which distorts CVP analysis.
C) It directly impacts the number of units of product a customer buys.
D) It is a cost that is incurred by a company that must be accounted for.

Question

Quizplus · Accepted Answer

Identification of a relevant range is important because cost behavior outside of this range is not linear and can distort the analysis of cost-volume-profit (CVP). Therefore, identifying the relevant range is critical to ensuring the accuracy of CVP analysis. This is especially important for businesses that have highly variable costs or those that experience significant changes in market conditions. The relevant range is not a requirement under GAAP, nor does it directly impact the number of units of product a customer buys or represent a specific cost.

Why Is Identification of a Relevant Range Important