All 34 Flexible Budgets questions
More in Flexible Budgets
What is a flexible budget? Why is a fixed budget misleading for performance comparison? What is the difference between a flexible budget and a rolling budget? What is the purpose of a flexible budget in performance evaluation? How do fixed costs behave when a budget is flexed? What activity measure should be used to flex a budget? How does a flexible budget improve on a fixed budget for cost control? What is meant by 'flexing' a budget? Give a simple example of flexing a budget. What is the allowed cost (budget allowance) in flexible budgeting?
Advertisement
Budgeting & Forecasting › Flexible Budgets

What is the relevant range and why does it matter for flexible budgets?

Beginner

Answer

The relevant range is the band of activity over which cost behavior assumptions hold—fixed costs stay fixed and variable cost per unit stays constant. Flexing a budget is only valid within this range; outside it, fixed costs may step up (more supervisors, extra premises) and unit variable costs may change, so the assumptions break down.
Real-world example Doubling output beyond the relevant range forces a new factory lease, so 'fixed' costs step up.

Common follow-ups: What happens outside the relevant range? | Why does it constrain flexing?

Flexible Budgets Types of Budgets Flexible Budgets
All 34 Flexible Budgets questions