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Fixed cost become relevent cost when a particular decision affects the fixed cost of production.
For Example:
Before Decision fixed cost $100
After Decision Fixed Cost $120
so in this case fixed cost also becomes relevent for decision making.
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∙ 13y ago
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When is fixed cost relevant in decision making?
When there will be change in fixed cost of business then at that time fixed cost will be relevant cost For Example if acquiring new machinery will reduce the amount of fixed expense in that case fixed cost is also relevant.
What happens as the level of activity decrease within the relevant range?
Although fixed cost per unit decreases with increases in activity levels, total fixed cost is not affected by changes in the activity level within the relevant range.
Which cost will change with a decrease in activity within relevant range?
unit fixed costs and total variable cost
Which costs will change with an increase in activity within the relevant range?
Unit Fixed Cost and Total Variable Cost Kenny Kalejaiye
What are the five assumptions of break even analysis?
1 - All costs are classified as fixed cost or variable cost 2 - Fixed cost remains fixed within relevant range 3 - Behaviour of revenues and costs will be linear within relevant range 4 - In case of multiple products, the proportion of units, price and cost will not change 5 - There is no significant change in inventory level in period in review.
When is fixed cost relevant in decision making?
When there will be change in fixed cost of business then at that time fixed cost will be relevant cost For Example if acquiring new machinery will reduce the amount of fixed expense in that case fixed cost is also relevant.
Is fixed cost relevant in determining price of a product?
The fixed cost is relevant in determining price of a product. This is a cost that is associated with the product and will contribute to the total production cost of a product.
Why relevant range important?
outside the relevant range, variable cost and fixed cost behaviors patterns may change
What is all the alternatives to opportunity cost?
relevant cost may include fixed avoidable costs
What happens as the level of activity decrease within the relevant range?
Although fixed cost per unit decreases with increases in activity levels, total fixed cost is not affected by changes in the activity level within the relevant range.
Which cost will change with a decrease in activity within relevant range?
unit fixed costs and total variable cost
Examples of non relevant cost?
Examples are Sunk Costs, Fixed costs and Allocated Costs.
Which costs will change with an increase in activity within the relevant range?
Unit Fixed Cost and Total Variable Cost Kenny Kalejaiye
What are the five assumptions of break even analysis?
1 - All costs are classified as fixed cost or variable cost 2 - Fixed cost remains fixed within relevant range 3 - Behaviour of revenues and costs will be linear within relevant range 4 - In case of multiple products, the proportion of units, price and cost will not change 5 - There is no significant change in inventory level in period in review.
An increase in the activity level within the relevant range results in?
A decrease in fixed cost per unit
Define relevant range in accounting?
an increase or decrease on a company's fixed costs is however not only dependent on the relevant period but also on the relevant production range. The total fixed costs will remain constant if the relevant production range can be handled by the same number of production units, producing fewer steps. If a certain step ( certain cost level) encompasses the entire relevant range of activity, the costs are entirely fixed.
Definition of step costs?
step cost : its a cost that is fixed cost during the short run within the relevant range , and it will become variable cost over the long run as supervisory salary .
