The use of a relationship of total factory overhead to direct labor hours is said to be valid only within the relevant range, which means:
A) Within a reasonable dollar amount for labor costs.
B) Within the range of observations of the cost driver.
C) Within the range of reasonableness as judged by the department supervisor.
D) Within the budget allowance for overhead.

Question

Quizplus · Accepted Answer

The relevant range refers to the range of observations of the cost driver (in this case, direct labor hours) where the relationship between total factory overhead and direct labor hours is considered valid. It is important to note that if the level of production or activity exceeds the relevant range, the relationship may no longer hold and a different cost driver may need to be used. The other choices (A, C, D) do not accurately describe the concept of the relevant range.

The Use of a Relationship of Total Factory Overhead to Direct