When estimating a cost function, cost behavior can be approximated by a linear cost function within the relevant range.

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Within the relevant range of activity, cost behavior can often be approximated by a linear cost function. This assumption is based on the concept of variable costs that increase proportionately with the level of activity, while fixed costs remain constant regardless of the level of activity. However, outside the relevant range, cost behavior may change and become nonlinear.

When Estimating a Cost Function, Cost Behavior Can Be Approximated