What is the purpose of using scatter plots in cost analysis?

Using scatter plots in cost analysis serves the purpose of determining cost behavior visually based on historical data. By plotting data points that represent historical costs against activity levels or other relevant variables, scatter plots provide a visual representation that helps analysts to observe and identify patterns or relationships.

This visual approach allows for a better understanding of how costs change in relation to changes in levels of activity, thereby facilitating the identification of variable, fixed, and mixed costs. The patterns that emerge from the scatter plot can guide managers and decision-makers in forecasting future costs and in establishing budgets. Essentially, scatter plots serve as a powerful tool for cost behavior analysis, allowing for a more intuitive grasp of how costs fluctuate with different operational factors.