Future Business Leaders of America (FBLA) Agribusiness Practice Test

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What is meant by the term 'relevant range' in cost behavior?

  1. The total range of all production capabilities

  2. The range of production where cost behaviors remain consistent

  3. The maximum production output achievable

  4. The variety of costs incurred in manufacturing

The correct answer is: The range of production where cost behaviors remain consistent

The term 'relevant range' in cost behavior refers specifically to the range of production levels over which fixed and variable costs behave in a predictable and consistent manner. It is crucial for businesses to understand this concept because it helps them forecast costs effectively within a certain volume of activity. In the relevant range, fixed costs remain unchanged, and variable costs fluctuate in direct proportion to the level of production. Outside of this range, fixed costs can change (for example, additional fixed costs may arise if a company needs to rent more space or invest in new machinery), and the behavior of variable costs may also differ, leading to variations in total costs. Thus, option B accurately captures the essence of the relevant range, emphasizing the stability of cost behaviors within these production limits.

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