Chapter 21, Problem 13DQ

To determine

Cost behavior analysis means study that how the cost changes with the change in activity level or production volume. Cost behavior is not compulsory under any GAAP but it is an important part of the organization efforts to control the costs and maximization of profits. It is also necessary to calculate the break-even point and cost-volume profit analysis.

Cost behavior can be analyzed using various methods:

1. High-low method/ equation method
2. Scatter diagram method
3. Regression analysis

To determine:

In the given question we have to explain that how the scatter diagram is used to identify and measure the behavior of a company’s cost.