In the scattergraph method, a line is fitted to the plotted points by eye using a ruler. Ordinarily the scattergraph method is a better way of determining a cost formula than the high-low method. The scattergraph method includes all of the observed cost data in the analysis. The line fitted to the plotted data is called a regression line. Typically, the regression line is place so that approximately equal numbers of points fall above and below it.
Subsequent calculations are easier if the regression line is drawn through one of the points.
The traditional approach to the income statement is not organized in terms of cost behavior. It is organized in a functional format. The traditional income statement has limitations when used for internal planning, control, and decision-making responsibilities. The contribution approach to the income statement has been developed in response to this need. The contribution approach separates costs into fixed and variable categories, first deducting variable expenses from sales to obtain what is known as the contribution margin.