 In this presentation, we will discuss scatter diagrams, how to use them, how to create them. Scatter diagrams are going to be used as one tool with relation to the mixed cost. You'll recall that the mixed costs of those costs that we couldn't break out between the variable costs and the support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course, each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. They fixed costs and they have some components of both variable and fixed in their nature. Things like we said wages could be possibly a mixed cost or utilities. In some cases might be mixed costs. Those times when we have both fixed and variable components, we then need to break out the fixed and variable components. There then is the question of how do we do that? How do we think about what is fixed and what is variable? One way to do it is just to plot some points on a graph and think about and look at what those points look like with relation to that graph. So here's some numbers with relation to units produced and utility cost. And this if we plot these points, if we say, okay, this is January, February, March units that were produced and we then graph utilities in relation to it, we can then plot those points. Now note what we've done here is we have these points in terms of the date they're in order by date. We could reorder this grouping of number to be in order by units and we would then see that of course as the units go up, then the cost goes up to some degree in some kind of relationship. However, the relationship is not linear in nature. It's a little bit off. It's pretty straight. It's almost a straight line, but it's not completely linear. So this is one that's pretty close to having a nature that we can at least say is it going to be a linear type of nature. If we were to graph a line on this, then we could say, okay, here's the full diagram of it. We're plotting. We're just taking these points and plotting these points. This is going to be the dollar amount on the vertical axis. We have the units on the horizontal axis. And of course you could see at 100, we have 100 and that's at 5,250. And then again, it doesn't go quite in order in terms of the units of production. It's at 190 here somewhere up here. And then we've got 7,860, 7,860. And then it goes to the 110. But you can see that as we go up in terms of units, we have an increase typically in the dollar amount as well. Although the slope is not exactly the same. If we were then to draft a line that would approximate what we think would be the trend line of this set of data, which here is going to be pretty straightforward because the data points line up pretty close to the straight line, then we could just put the trend line in place. And that trend line can give us a lot of information about this data. So we can then once we have the line, get the slope of the line, and we can get the formula for the line. So the formula for the line then would be y equals 29x plus 2,350 in this case. Once we then have the formula of the line, we can determine when this line will hit the vertical axis. And at that point in time, that's going to be the fixed cost, because that will be at the point where we have zero units being produced still have some cost that cost must be the fixed portion of this type of expense. So how do we do that? We set the x to be zero to the line, and then we solve the equation. So y equals 29 times zero plus 2,350. y equals 2,350. So in other words, if we were to extend this line out, then it's going to hit the vertical axis at 2,350. And that then is what we would think would be the fixed portion of this mixed cost. Now, if we were to see a scatter diagram that would be a little bit more crazy in terms of where the points line up, there's not so linear in nature. It might look something like this. We might see scatter diagrams that aren't so linear for whatever reason. And we could do the same type of thing. We just happen to have some data that doesn't quite line up in a linear fashion as we would expect. We could look at this in detail and try to figure out why that happened. We can try to think about what's this kind of outlier type of points that we have in the scatter diagram. But if we take that set of data, then we could still do the same process and add our trend line to what we think is the best representation of that set of data. So we're going to say, hmm, there's the set of data, we're going to put a trend line because we need a linear line here. And now it doesn't line up too closely, or it's not approximating or touching all the dots here, of course, but we're going to still try to create the best line that we can. We could do the similar process with this once we get that trend line. And we will show, if you take a look at the examples, how to do this in Excel, we can plot this, we can make the graph, we can use Excel to give us our trend line, and we can use Excel to help us to get a formula even. Although we can once we have the line, we can get the formula for a line, which in this case is going to be y equals 27.567. It's not exact x plus 2617.9. Once we have that once again, we could take that line and extend it to the vertical axis, we can use a formula to do that, y equals 28x plus 2001 18 2006 18, we could then make x zero and solve for y, which of course would be 2618. So if we extend this out, then we're going to say this is going to be somewhere about 2618, where it hits the vertical axis. And that again is what we would assume would be the fixed portion, because if it's if it's at zero, and we still have 2006 18, that must be our fixed costs, we're going to say, but that's for going to be the fixed portion. And then we can try to estimate or approximate what the slope of the line is with our line, which is going to be our trend line in our scatter diagram.