# ACC 406 Lecture Notes - Scatter Plot, Fixed Cost, Variable Cost

40 views2 pages Chapter 3: Cost Behaviour
The relationship between cost and activity volume
Variable cost + fixed cost = total cost
3 methods of calculation:
High-low method
Scatterplot method
Method of least squares
To estimate the cost formula
Total Cost = Total Fixed Cost + (variable cost per unit) (activity unit)
Y = F+ (V) (X)
1) High Low Method
Month
Total Cost
Unit Produced
Jan (low)
\$2,000
200
Feb
\$2,500
400
March
\$4,500
600
April
\$5,000
800
May (high)
\$7,500
1000
Variable Method = YH-Y.L / XH-XL
= 7500-2000/ 1000-200
= \$6.875 per unit
F = YH- (V)(XH)
F = 2000 (\$6.875)(200)
= 625
2) Scatterplot
Methods
Pros
Cons
High- Low
More objective
Only considers two data points
Scatterplot
Considers all data points
Too subjective
Method of Least Squares
More objective, considers all data
points
Does not exclude others
automatically
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