The objective of a scatter diagram is to depict degrees of correlation. Each observation is represented by a dot on a graph corresponding to specific values of x (the independent variable) and y (the dependent variable).

Absorption costing inventories all direct manufacturing costs and both variable and fixed manufacturing overhead indirect) costs.

Given that demand is constant and the EOQ is 2,500 units, the average inventory level-1 without regard to safety stock is 1,250 units 2,500 - 2). Adding safety stock results in an average level of 1,750 units 1,250 + 500). Given also that annual holding costs are 25% of average inventory and that unit cost i s U $4, total annual holding cost i s U $1 ,750 [(1 ,750 units : $4) 25%]. Using an EOQ analysis assuming a constant demand), it is determined that the optimal order quantity is 2,500. The company desires a safety stock of 500 units. A five day lead time is needed for delivery. Annual inventory holding costs equal 25% of the average inventory level. It costs the company US $4 per unit to buy the product, which it sells for US $8. It costs the company US $150 to place a detailed order, and the monthly demand for the product is 4,000 units.