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?

    Learn about variable costs. Explore how and why these costs may fluctuate, as well as ways in which they may differ from ... Read Answer >>
  2. How are semi-variable costs similar to fixed costs?

    Learn what fixed costs are, what semi-variable costs are, why semi-variable costs are similar to fixed costs, and how semi-variable ... Read Answer >>
  3. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  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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