Which of the following statements is not true regarding the scattergraph method of cost estimation?
A) It is useful in illustrating the relationship between costs and activity level
B) It points out any past data items that might be significantly out of line
C) The intercept cannot be interpreted as the fixed cost because it lies outside of the relevant range
D) The variable costs can be seen visually as the slope of the cost function

Question

Quizplus · Accepted Answer

The intercept in the scattergraph method can be interpreted as the fixed cost within the relevant range, contrary to what option C suggests. This method plots historical cost data against activity levels and fits a straight line to the data, where the intercept represents fixed costs and the slope represents variable costs per unit of activity.

Which of the Following Statements Is Not True Regarding the Scattergraph