There is always a minimum and maximum amount which makes a range between them. It might happen you might ask someone what is the range to which a specific service and its rate belong. All this sums up in a relevant range.
“A particular standard of activity which is restricted with a maximum and minimum amount is defined as a relevant range. “
You can expect a specific cost and revenue difference within a defined restriction. The expenses and revenues tend to differ outside the relevant range. You might be thinking about where the concept of relevant range can be taken into consideration? Below mentioned are the two types of analysis with which you can make use of the concept of relevant range, take a look:
- Cost Accounting: Well, when you talk about the assumed cost of a specific product, activity or service, then it falls between the relevant range and it’s not valid at all when it’s outside the range. When a product has a price fixed, then it bounds to stay fixed only within the relevant range of the respective product. And when it is about bulk discounts, it is only valid for a specific quantity of product while making a purchase.
- Budgeting: When an organization plans for future activities it keeps the budget in mind. Various assumptions are needed to be made for the different range of exercises with which the company is going to function. So, when the numbers fall between the range assumed, the expenses and budget revenues will automatically show you the numbers you calculated. Hence, it is very important to make sure the activity level falls under the relevant range as assumed. The more the accuracy is when the activity numbers fall in the relevant range.
Relevant Range For Business Operations
Well, before starting a working project, there needs to be an assumption on the number of activities which will be needed to be performed to generate the required results. The relevant range here refers to the average or normal scope of exercises executed for the company’s objectives. Other of economic prosperity, when a company acknowledges an average volume of production and sales than that is referred to as a relevant range of operations.
The relevant range of company exercises is just perfect to make decisions and manage a business procedure. The entire base of management can plan accordingly to the relevant range of operations and it is because of its consistency. With future depression, it literally becomes extremely difficult for the management to plan for the volumes of production. But depending upon the average range of the company procedures and operations, the management can take complete control of the productions and sales and predict it accordingly. And because of the range of operations is acknowledged as relevant for the business purposes.
Hopefully, this article would have given you a better concept of the relevant range and how it can prove to be beneficial for the company operations. Relevant range generally comes in to use for describing fixed costs as mentioned above and helps one to predict the accurate assumption with which they need to work accordingly.
It helps them know whether the business is heading in correct path or not, as if the number of activities is not falling as per the assumed relevant range, then it’s time for them to rethink. If you want to know information about any other relevant topic, you can reach to us. We will definitely try to share the information on the specific topic.