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

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Published on 13 Sep 2012

School

Department

Course

Professor

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