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 high low method is the method of segregating semi-variable cost which is based on the analysis of the past records of expenses. This method takes into account only the highest and the lowest values contained in the data in order to determine the rate of cost change and thereafter variable cost. The variable cost is then deducted from the total cost to get the fixed cost.
The least-square method is a statistical method used in separating semi-variable cost by establishing a line of best fit to data. The linear cost function can be represented by using the equation
y = a+bx,