relevant range

Picture a small cafe that runs fine with one espresso machine and three baristas, serving anywhere from 100 to 400 cups a day. Within that range, rent and equipment stay the same and each cup costs about the same to make — the simple cost rules hold. But push to 1,000 cups and the story breaks: you need a second machine, a bigger space, more managers. The band of activity where your normal cost assumptions actually hold is the relevant range.

Precisely, the relevant range is the span of activity (units, hours, sales) over which the assumed cost behavior — fixed costs staying constant in total, variable cost per unit staying constant — remains valid. Outside that band, fixed costs jump in 'steps' (you rent a second warehouse) and per-unit variable costs can change (overtime pay, bulk discounts, crowding). For example, factory rent of 50,000 is fixed only for output between, say, 0 and 10,000 units; produce 11,000 and you must lease more space, so the 'fixed' cost steps up to 75,000. The straight-line cost model is only an approximation that works inside the range.

This matters because every tool that assumes neat fixed and variable costs — high-low method, CVP, break-even, budgets — silently assumes you stay inside the relevant range. The common mistake is to take a per-unit cost computed at normal volume and blindly apply it to a wildly different volume; at very low or very high activity the numbers mislead. Relevant range is the honest fine print on cost behavior: the simple lines are true here, and only here.