Scattergraph Method

DEFINITION of 'Scattergraph Method'

A visual technique for separating the fixed and variable elements of a semi-variable expense (also called a mixed expense) in order to estimate and budget for future costs. A scattergraph is made up of a horizontal x axis that represents production activity, a vertical y axis that represents cost, data that are plotted as points on the graph and a regression line that runs through the dots which represents the relationship between the variables.

BREAKING DOWN 'Scattergraph Method'

Business managers use the scattergraph method in cost estimation to anticipate operating costs at different activity levels. The method gets its name from the overall image of the graph, which consists of many scattered dots. While the method is simple, it is also imprecise. Alternate methods of cost estimation include the high-low method, account analysis and least squares.

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RELATED FAQS
  1. What are the variables in variable costs?

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  2. How are semi-variable costs similar to fixed costs?

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  3. How are fixed costs treated in cost accounting?

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  4. Do production costs include all fixed and variable costs?

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  5. What variables are most important when making a prediction through sensitivity analysis?

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