A cost formula may not be valid outside the relevant range of activity.

Question

Quizplus · Accepted Answer

A cost formula is developed based on a specific range of activity levels. If the level of activity goes beyond this range, the cost formula may not accurately predict costs. For example, a manufacturing company may have a cost formula based on producing 10,000 units per month. If the company starts producing 15,000 units per month, the cost formula may not be accurate for predicting costs related to producing 15,000 units per month.

A Cost Formula May Not Be Valid Outside the Relevant