Final answer:
Analyzing a large change in sales volume outside of the relevant range may not be reliable, as the assumptions underlying financial analyses do not hold true beyond this specified activity span. This can lead to inaccuracies in projections, highlighting the need for careful consideration of the data range and representation in analysis.
Step-by-step explanation:
The given statement concerns the effect of a large change in sales volume on financial analysis, specifically outside the relevant range. In this context, the relevant range refers to the span of activity or volume in which the fixed and variable cost assumptions hold true. The use of such analysis outside the relevant range could lead to inaccurate projections as costs can behave differently at higher or lower volumes that lie beyond the range considered in the initial analysis. Therefore, the statement suggests caution when analyzing changes in sales volumes that lie outside the relevant range — implying that doing so may not be reliable.
For instance, in the context of a feasibility study or evaluating the proportion of households that own personal computers, using a sample or model that does not adequately represent the variety of scenarios can lead to incorrect conclusions. This is highlighted by the problem of working with data that offer low statistical power or have extreme values, making it hard to differentiate between signal and noise. Furthermore, when data are extracted from graphs or analyses, it is essential to consider the uncertainty in those numbers, as they might not reflect precision if they are outside the established range or if the samples are not representative.
Overall, when dealing with financial analyses or statistical testing, it is crucial to ensure that the methods and assumptions applied are suitable for the range of data being considered. Otherwise, there could be a risk of making decisions based on an analysis that is inapplicable or intractable for the situation at hand.