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Forecasting using a scatter graph

Can you accurately predict future costs by looking at previous costs? Watch this video to learn how to calculate forecasts using a scatter graph.

Can you accurately predict future costs by looking at previous costs? Or future sales by examining past sales? The next few steps build on what you learned on costing behaviour in the previous course and show you ways of doing just that.

For example,

  • What will our costs be if we increase production to 2000 units?

One way for a business to make these forecasts would be to plot their past data a scatter graph:

A line of best fit is then drawn through the centre of the points on the scatter graph:

This can help businesses to forecast their costs by looking up their production level on the line of best fit to see the corresponding costs. However, because the line of best fit is drawn by eye, it isn’t much more than a rough estimate, and so isn’t very accurate.

There is a more accurate method, which we will look at next.

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Budget Forecasting, Costing, and Variances

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