Model Answers for Business Statistics

THIRD LEVEL Series 2 2002

(Code 3009)

LCCI Examinations Board

ASP M 1140 >f0t@WJY2[2`EdEW4\#

Business Statistics Third Level

Series 2 2002

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Model Answers have been developed by LCCIEB to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCIEB examinations. The contents of this booklet are divided into 3 elements: (1) (2) Questions Model Answers reproduced from the printed examination paper summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable) where appropriate, additional guidance relating to individual questions or to examination technique

(3)

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Business Statistics Third Level

Series 2 2002
QUESTION 1 In the year 2000 a random sample of 96 small companies revealed the following profits and losses distribution: Profits and Losses (000) -50 up to 0 0 and up to 10 10 and up to 20 20 and up to 40 40 and up to 80 80 and up to 150 Number of companies 10 12 21 26 19 8

(a) Calculate the arithmetic mean and the standard deviation of these company profits and losses. (8 marks) In the previous year a random sample of 150 small companies showed a mean profit of 28,400 with a standard deviation of 28,352. (b) Test to see if there has been a significant increase in the average profit made by small companies. (7 marks) (c) Calculate a 99% confidence interval for the arithmetic mean in the year 2000. (5 marks) (Total 20 marks)

Model Answer to Question 1 (a) 50 up to 0 Over 0 and up to 10 Over 10 and up to 20 Over 20 and up to 40 Over 40 and up to 80 Over 80 and up to 150 f 10 12 21 26 19 8 96
f

mid pt 25 5 15 30 60 115

fx 250 60 315 780 1,140 920 2,965

fx

fx 6,250 300 4,725 23,400 68,400 105,800 208,875

fx 2

x= x
f
2 fx s = fx f f 2

x = 2,965
96

= 30.89 (000) (30,885)

s=

208,875 2,965 96 96

2,175.78 953.91 = 1,221.87 = 34.96 (000) (34,955)

(b) Null hypothesis:

There has not been an increase in the average level of profits

Alternative hypothesis: There has been an increase in the average level of profits Critical z for 0.05 significance level I tail test 1.64

z = x1 x2 = s12 + s22 n1 n2

30.89 28.4 34.962 28.3522 + 96 150

2.49 18.09

= 0.59

Alternative answer: 0.58 Conclusions: Accept the null hypothesis, there is insufficient evidence to claim the average level of profits has increased.

(c)

ci = x 2.58

= 30.89 2.58

34.955 96

= 30.89 2.58 x 3.57 = 30.89 9.21 = 21.68 to 40.1 (000)

QUESTION 2

The price of the standard family saloon car and the company market share was recorded for a random sample of 12 car manufacturers.
Selling price 00 Market share %

137 14

138 15

125 10

142 8

168 9

145 7

135 11

145 5

160 3

146 5

136 7

160 2

(a) Plot the data on a scatter diagram and comment. (4 marks) (b) Calculate the product-moment correlation coefficient. (10 marks) (c) Test to find if the correlation coefficient differs significantly from zero. (6 marks)
(Total 20 marks)

Model Answer to Question 2

(a)
16 14 12
Market Share %

Price and Market Share

10 8 6 4 2 0 12,000 13,000 14,000 15,000 16,000 17,000 18,000

Series 1

Price Comment : Some weak negative relationship.

137 138 125 142 168 145 135 145 160 146 136 160 1,737
x

14 15 10 8 9 7 11 5 3 5 7 2 96
y

18,769 19,044 15,625 20,164 28,224 21,025 18,225 21,025 25,600 21,316 18,496 25,600 253,113
x2

196 225 100 64 81 49 121 25 9 25 49 4 948

1,918 2,070 1,250 1,136 1,512 1,015 1,485 725 480 730 952 320 13,593
xy

y2

(b)

r=

n xy ( x ) ( y )
2 2 2 2 n x ( x ) n y ( y )

r=

(12 x 253,113 1,737 2 )(12 x 948 96 2 )

(3,037,356 3,017,169 )(11,376 9,216 ) (20,187 )(2,160 )
3,636 = 0.5506 163,116 166,752

12 x 13,593 1,737 x 96

r=

r=

CONTINUED ON NEXT PAGE

Model Answer to Question 2 continued

(c) Null hypothesis: The correlation coefficient does not differ from zero. Alternative hypothesis: The correlation coefficient does differ from zero. Degree of freedom Critical t0.025 = 2.23 = n 2 = 12 2 = 10

t=

r n2 1 r2

t=

0.55 12 2
1 ( 0.552 )

t=
=

1.61 1 0.3025 1.61 0.835

= 2.086 Conclusions: The calculated value of t is less than the critical value of t. There is insufficient evidence to reject the null hypothesis. The correlation coefficient does not differ from zero.

QUESTION 3

A company is planning the launch of a new product. It estimates the probability of good market conditions to be 80%. If market conditions are good the probability of a successful launch is 75%, if market conditions are poor the probability of a successful launch is 50%. (a) Find the probability that the launch is successful. (5 marks) (b) If the product launch is unsuccessful what is the probability that the market conditions were poor? (6 marks) The estimated returns from the new product launch are: Market conditions are good and the product launch is successful Market conditions are good and the product launch is unsuccessful Market conditions are poor and the product launch is successful Market conditions are poor and the product launch is unsuccessful (c) What is the expected profit from the new product launch? (4 marks) The company sells an established product that has variable levels of weekly sales with arithmetic mean of 5,000 and standard deviation of 600. You may assume that the sales are normally distributed. (d) (i) Find the probability that in one week there are sales of over 6,500 55 million 13 million 37 million 19 million

(ii) The sales have to exceed 3,800 in each week for the product to break even, what is the probability of this happening? (5 marks)
(Total 20 marks)

Model Answer to Question 3

(a) Good market conditions and successful = 0.8 x 0.75 = 0.6 Poor market conditions and successful = 0.2 x 0.5 = 0.1 Probability of successful launch Accept decision tree (b) Good and unsuccessful Poor and unsuccessful Probability unsuccessful = 0.7

= 0.8 x 0.25 = 0.2 = 0.2 x 0.5 = 0.1 = 0.3

Poor and unsuccessf ul Probability unsuccessf ul

0.1 0.3

= 0.33

(c) Expected return Good market conditions and successful launch 0.8 x 0.75 x 55m = 33m

Good market conditions and unsuccessful launch 0.8 x 0.25 x 13m = -2.6m Poor market conditions and successful launch 0.2 x 0.5 x 37m Poor market conditions and unsuccessful launch 0.2 x 0.5 19m = 3.7m = 1.9m 32.2m

(d) (i)

z = x sd

z=

6,500 5,000 1,500 = 600 600

= 2.5, prop = 1 0.994 = 0.006 (ii)

z = x sd
Proportion = 0.977

z=

3,800 5,000 1,200 = = 2 600 600

QUESTION 4

(a) What are the benefits of an effective quality control system? (4 marks) A company in its quality control procedures sets the warning limit at the 0.025 probability point and the action limit at the 0.001 probability point. This means for example that the upper action line is set so that the probability of the mean exceeding the line is 0.001. The internal diameter of a bored hole is set at 35 mm with a known standard deviation of 0.1 mm. Random samples of 9 items at a time are taken from the production line to check the accuracy of the manufacturing process. (b) (i) (ii) Construct a quality control chart to monitor the manufacturing process. (8 marks) The results for 8 samples are given below. Plot these on your quality control chart and comment on the graph. (4 marks) 1 35.05 2 34.94 3 34.89 4 35.16 5 35.15 6 34.95 7 34.99 8 35.08

Sample number Sample mean (mm)

(c) If the process mean changed to 35.02 mm and the standard deviation remained at 0.1 mm calculate the probability that the mean of a random sample of 9 components would be outside the warning limits. (4 marks)
(Total 20 marks)

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Model Answer to Question 4

(a) The benefits of a good quality control system are better quality products, fewer rejects and less waste, better customer relations, more sales Warning limits = upper w lts lower w lts Action limits =

x 1.96 n

= 35 1.96

0 .1 9

= 35 1.96 x 0.033

35.06 34.94
= 35 3.09

35.07(2) 34.93(2)
0 .1 9 = 35 3.09 x 0.033

x 3.09 n

upper act lts lower act lts (b)

35.10 34.90

Quality Control Chart

The process goes out of control twice. It seems unstable. (c)

z = x sd

35.02 35.07 0.05 = = 1.5 0.1 0.033 9

Probability the mean lies outside the upper warning limit = 0.067
34.93 35.02 = 2 .7 0 .1 9

Probability the mean lies outside the lower warning limit = 0.004 Total probability = 0.071 or (0.072 if 0.0333 is used)

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QUESTION 5

(a) In what circumstances is a significance test based on the t distribution used in preference to a significance test based on the normal distribution? (4 marks) Data input clerks are sent on an intensive training course to increase their keyboarding speed. The results of a before and after test for a random sample of 10 clerks gave the following results. Speed is measured in key depressions per minute (kdp).
Clerk Before training course (kdp) After training course (kdp)

a 625 610

b 598 620

c 685 690

d 754 780

e 658 690

f 690 702

g 559 573

h 840 851

i 758 744

j 685 690

(b) Test whether the training course has increased the clerks data input speed. (12 marks) (c) What is meant by a Type I and a Type II error? (4 marks)
(Total 20 marks)

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Model Answer to Question 5

(a) The t distribution is used when n the sample size is small <30 and the standard deviation is estimated from the sample. (b) Null hypothesis: The course has not increased the speed of the data input clerks Alternative hypothesis: The course has increased the speed of the data input clerks Degree of freedom n 1 10 1 = 9 Critical t0.05 value = 1.83 625 598 685 754 658 690 559 840 758 685 610 620 690 780 690 702 573 851 744 690 15 22 5 26 32 12 14 11 14 5 98
d
2

225 484 25 676 1,024 144 196 121 196 25 3,116

d2

615.04 148.84 23.04 262.44 492.84 4.84 17.64 1.44 566.44 23.04 2,155.60
d d
2

d = d n

98 = 9 .8 10

sed =

d d

d2

( d )2
n

n 1

n 1
3,116

2,155.8 = 10 1

239.53 = 15.48

or

982 10 10 1

t = d 0 = sed

9.8 0 9 .8 = =2 15.48 4 .9 10

If a two sample means test is used can score 5: nh/ah, conclusions

Conclusions:

The calculated value of t is greater than critical value of t reject the Null Hypothesis the speed of the data input clerks has increased

(c) A Type I error is the error of rejecting a null hypothesis that is true and a Type II error is the error of accepting a false null hypothesis which should be rejected.

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QUESTION 6

(a) (i) (ii)

What is meant by the standard error of the mean? What is the difference between a one and two tail test?

(4 marks) (4 marks)

In September 2001, a Travel Agent used a random sample of 36 holiday makers to find out the average cost per person of a one week holiday in Ruritania. The following information was found:
September 2001

Mean Standard deviation Sample size

372.40 26.10 36

In the previous year the average cost of each holiday was 356.20. (b) Test whether the cost of a one week holiday to Ruritania has increased significantly since the previous year. (6 marks) The company based its views on customer satisfaction from the letters it receives. In the previous year, 68% of the letters it received were of a positive nature. (c) The company wishes to adopt a more scientific approach to estimating customer satisfaction. What sample size would be needed to estimate the proportion of customers views to within 2% of the true figure at the 95% confidence level? (6 marks)
(Total 20 marks)

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Model Answer to Question 6

(a) (i)

The standard error of the mean is the measure of dispersion of the sample means. It equals

(ii)

A one tail test tests the direction of the difference between two statistics. A two tail test tests if there is a difference between the two statistics without regard to the direction.

(b) Null hypothesis:

There is no difference in the holiday cost between last year and September Alternative hypothesis: There is an increase in the holiday cost between last year and September Critical z value = 1.64

z = x = / n
Conclusions:

372.4 356.2 26.1 / 36

16.2 4.35

= 3.72

The calculated value of z is greater than the critical value of z. Reject the null hypothesis. There is evidence to suggest that the holiday cost has increased significantly.
0.02 0.68 x 0.32 n

(c)

1.96 >

0.02 p(1 p) n

1.96 >

1.96 >

0.022 0.68 x 0.32

3.8416 >

0.0004 0.2176

n>

3.8416 x 0.2176 > 2,089.8 0.0004

n
n = 2,090

15

QUESTION 7

(a) In what circumstances is the multiplicative model preferable to the additive model in time series calculations? (4 marks) The table below shows the quarterly sales figures for a company:
Quarter 1 Quarter 2 Quarter 3 Quarter 4

1998 1999 2000

48 64 72

56 76 100

70 86 108

96 132 188

(b) By the method of centred moving averages, calculate the trend values for the time series and plot the trend on a graph. (10 marks) The average seasonal components calculated by the multiplicative method are shown below:
Quarter 1 0.768 Quarter 2 0.903 Quarter 3 0.980 Quarter 4 1.349

(c) Using the average seasonal components provided above and the original sales figures, calculate the seasonally adjusted sales and plot the results on the graph constructed for part (b). Comment on your results. (6 marks)
(Total 20 marks)

16

Model Answer to Question 7

(a) The multiplicative model is preferable when the data has a strong trend with the differences between the trend and the original data values varying proportionally to the trend values rather than absolutely. (b)

(c) Qtr 1 2 3 4 5 6 7 8 9 10 11 12

Sales 48 56 70 96 64 76 86 132 72 100 108 188

Total

m avg 1

m avg 2 Trend 69.5 74 78.5 85 90.5 94.5 100.25 110

270 286 306 322 358 366 390 412 468

67.5 71.5 76.5 80.5 89.5 91.5 97.5 103 117

17

CONTINUED ON NEXT PAGE

Model Answer to Question 7 continued

Sales 48 56 70 96 64 76 86 132 72 100 108 188 Comment:

Seasonal adjustment 0.768 0.902 0.980 1.349 0.768 0.902 0.980 1.349 0.768 0.902 0.980 1.349

Seasonal Adjusted Sales 62.50 62.08 71.43 71.16 83.33 84.26 87.76 97.85 93.75 110.86 110.20 139.36

The trend and seasonally adjusted data values show little difference. This implies there is no change in the underlying trend.

18

QUESTION 8

(a) When might a 2 test be used? (4 marks) From its records, a company analyses its sales by size and region. The table below shows the results:
Size of order Region 0 and up to 1,000 1,000 and up to 3,000 3,000 and up to 10,000 10,000 and over

Northern Midlands Southern

40 50 40

33 45 32

20 40 40

15 25 20

(b) Test whether there is a relationship between size of order and region. (12 marks) (c) Combining the three regions estimate a 99% confidence interval for the proportion of orders that are valued at less than 1,000. (4 marks)
(Total 20 marks)

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Model Answer to Question 8

(a) The Chi-squared test is used to test for association between characteristics rather than variables, for randomness or changes in proportions. (b) Null hypothesis: There is no association between the size of order and region Alternative hypothesis: There is association between the size of order and region Degrees of freedom = (4 1)(3 1) = 6 Critical

2 = 12.59
<1,000 1,000<3,000 3,000<10,000 10,000+

Region

Total expected freq

40 50 40 130 35.1 52.0 42.9 0.684 0.077 0.196 5.288

2

33 45 32 110 29.7 44.0 36.3 0.367 0.023 0.509

20 40 40 100 27.0 40.0 33.0 1.815 0.000 1.485

15 25 20 60 16.2 24.0 19.8 0.089 0.042 0.002

contribution to chi

= (O E ) = 5.288 E
Conclusions: The calculated 2 is less than the critical 2 . There is insufficient evidence to reject the null hypothesis. There is no association between the size of order and region.

(c) 99% confidence z = 2.58 p = 130/400 = 0.325, (1 p) = 0.675

ci = p 2.58 p(1 p ) / n

= 0.325 2.58

0.325 x 0.675 / 400

= 0.325 2.58 x 0.0234 = 0.325 0.0604 0.265 to 0.385

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