Why is the cost function for the flexible budget only applicable within the relevant range?
A) Management does not expect to have production levels outside of the relevant range
B) Some costs will behave differently outside of the relevant range
C) The cost levels affect the range of production levels available
D) Only the static budget matters when compared with results outside of the relevant range
E) None of the above

Question

Quizplus · Accepted Answer

The cost function for the flexible budget is only applicable within the relevant range because some costs (fixed, variable, and mixed) will behave differently outside of that range. For example, fixed costs may increase if a new production facility is needed, or variable costs per unit may decrease due to economies of scale.

Why Is the Cost Function for the Flexible Budget Only