A scatter graph technique is the method of separating semi-variable costs into fixed and variable elements. This method is also known as the regression line method. This method is based on past data, but it takes into account all data as compared to the high low method which considers only the highest and lowest items in the given data. This article provides five steps you should follow when segregating or separating semi-variable cost by using a scatter graph technique
The contribution is the difference between the selling price and variable cost (or marginal cost) is known as `contribution’ or `gross margin’. It may be considered as some sort of fund from out of which all fixed costs are met. The difference between contribution and fixed cost represents either profit or loss, as the case may be.
The contribution is calculated using the following formula:
Contribution = Selling Price – Variable Cost= Fixed Cost + Profit Or – Loss
Fixed cost is the cost which accrue in relation to passage of time and which within certain output or turnover limit (relevant range), tend to be
unaffected by fluctuations in the level of activity, that is output or turnover.