COURSE DOCKET

SUBJECT: MANAGERIAL STATISTICS

PGDM TERM I
FACULTY: ROHIT R. MUTKEKAR

*Disclaimer:

Course Docket will help you for quick reference and provides fundamental inputs,
hence cannot be substitute for text book/reference books

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Course Docket
Subject: Managerial Statistics

Correlation Analysis

Introduction
Classification Correlation
o Positive/Negative/Zero Correlation
o Simple/Multiple/Partial Correlation
o Linear/Non-Linear Correlation

Degree of Correlation

Methods to determine Simple Correlation

o Scatter Diagram Method
o Karl Pearson Method
o Spearmens Rank Correlation Method

Properties of Correlation

o Examples on Simple Correlation Analysis

1. The following data provides details regarding sales and net profit for some of the top auto
makers during the quarter July-September 2006. Find the co-efficient of correlation using
an appropriate method and interpret the result.
Company
Tata Motors

Average Sales (X)

(Rs. Crores)
6484.8

Average Profit (Y)

(Rs. Crores)
466

Hero Honda

2196.5

224.2

Bajaj Auto

2444.7

345.4

TVS Motor

1032.9

35.1

Bharat Forge

461.6

63.4

Ashok Leyland

1635.8

94.7

M&M

2365.5

200.6

Maruti Udyog

3426.5

315.7

Source: Economic Times, 11th October, 2006

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Coefficient of Determination (r2)

2. The following are the monthly figures of advertising expenditures and sales of a firm. It is
generally found that the advertising expenditures has an impact on sales. Determine the
co-efficient of correlation for the data provided using rank correlation method.
Month

Adv Expenditure (Rs 000)

Sales (Rs000)

Jan

50

1200

Feb

60

1500

March

90

1600

April

70

2000

May

120

2200

June

150

2400

July

140

2500

Aug

160

2600

Sept

190

2800

Oct

170

2900

Nov

200

3100

Dec

250

3900

3. Find the co-efficient of correlation between the two kinds of assessment of postgraduate
students performance in a college using the rank correlation method.
Assessment Marks

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Name

Internal

External

51

50

63

72

73

74

46

50

50

58

60

66

47

50

36

30

60

35

Statistical Significance of Correlation

o For Karl Pearsons Method
o For Spearmens Rank Method
Assignment 1

1. Calculate the co-efficient of correlation for the original data given in Example 1 using
Karl Pearsons method. Determine the amount of variation in the result as compared to
the round of values. What can you conclude from this exercise?
2. A group of students of management programme at a certain institute were selected at
random. Their IQ and the marks obtained by them in the paper on decision science were
recorded. The details are as follows
IQ

Marks
Scored
120
85
110
80
130
90
115
88
125
92
120
87
Calculate co-efficient of correlation using Karl Pearsons and Spearmens Rank Method
and test for statistical significance in both the cases at 5% l.o.s.
3. Given below is the data about revenues and profit after tax for the quarter JulySeptember 2007 of some cement companies. Compute the co-efficient of correlation
using appropriate method and interpret the result. Also test the statistical significance at
1%.
Company

Revenues Profit after Tax

(Rs Crores)
(Rs Crores)
ACC
13
2.5
Ambuja
21
3.2
Ultratech
10
2.6
Shree
9
1.4
India
5
1.1
Bagalkot
3
0.8

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 Regression Analysis

Introduction
Types of Regression
o Simple Regression
o Multiple Regression
Simple Linear Regression Analysis using Least Squares Method
o Examples on Simple Regression Analysis using Least Squares Method
1. A group of students of management programme at a certain institute were selected at
random. Their IQ and the marks obtained by them in the paper on decision science were
recorded. The details are as follows
IQ

Marks
Scored
120
85
110
80
130
90
115
88
125
92
120
87
Fit a regression equation and interpret the result so obtained.
2. A national level organization wishes to prepare a manpower plan based on the ever
growing sales offices in the country. Data pertaining to manpower and the number of sales
offices for previous is given belowManpower
370
386
443
499
528
616

Sales Offices
22
25
28
31
33
38

Fit a regression model for the given data and estimate the manpower required if the
organization targets to have 43 sales offices at the end of 2015.

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3. The following data is relates to training and performance of salesmen employed in a

company.
Training (hrs.)
20
5
10
13
12

Performance(Avg weekly sales)

44
22
25
32
27

Fit a regression model and determine the weekly sales that is likely to be attained by a
salesman who is given 16 hours of training.

Regression Co-efficients

Standard Error of Estimate

Co-efficient of Determination

How good is the Regression?

Multiple Regression Analysis

Introduction
General form of Multiple Regression Model
Standard Error for Multiple Regression Model

o Examples on Multiple Regression Analysis

1. Fit a regression model for the following data and interpret the result
Sales
(Rs.Lakh)
100
80
60
120
150
90
70
130
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Adv Expenses
(Rs000)
40
30
20
50
60
40
20
60

Selling
Offices
10
10
7
15
20
12
8
14

2. The owner of a chain of the stores wishes to forecast net profit with the help of next years
projected sales of food and non-food items. The data about the current years sales of food
items, sales of non-food items as also net profit for all the ten stores are available as followsNet Profit
(Rs.Cr)
5.6
4.7
5.4
5.5
5.1
6.8
5.8
8.2
5.8
6.2

Sales of Food
Items (Rs.Cr)
20
15
18
20
16
25
22
30
24
25

Sales of Non-Food Items

(Rs.Cr)
5
5
6
5
6
6
4
7
3
4

Fit a regression model and interpret the result.

Adjusted Coefficient of Determination

Multicollinearity in Multiple Regression
Selection of Independent Variables in a Regression Model

Assignment 2
1. For the following data fit regression equations ofi.
Net Profit on Net Sales
ii.
P/E ratio on Net Sales
For the group of these companies
Name of the
Net Sales(Rs. Cr) Net Profit (Rs. Cr)
P/E Ratio
Company
(Sept, 2005)
(Sept, 2005)
(31st Oct, 2005)
Infosys
7836
2170.9
32
Wipro
8051
1831.4
30
Bharti
8211
1655.8
31
Hero Honda
9771
1753.5
128
ITC
8086
868.4
16
Satyam
8422
2351.3
20
HDFC
3996
844.8
23
Tata Motors
18368
1314.9
14
Siemens
2753
254.7
38
2
Interpret the result in terms of standard error, R and significance of regression model.
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2. A company wants to assess the impact of R&D expenditure (Rs. Cr) on Annual profits
(Rs. Cr). The following table give information for the past 8 years.
Year R&D expenditure Annual profits
2006
9
45
2007
7
42
2008
5
41
2009
10
60
2010
4
30
2011
5
34
2012
3
25
2013
2
20
Fit a regression model. Interpret the result in terms of standard error, R2 and significance
of regression model.
3. Ashwin, owner of a business unit, is concerned about the sales pattern of his product. He
realizes that there are many factors that might help explain sales, but believes that
advertising and prices are major determinants. He has collected data from the past
records which are as followsSales (unit sold)
37
65
75
87
22
29
Advertising (No of ads) 07
10
14
17
13
10
Price (Rs000)
129 115 140 130 145 140
Fit a regression model. Interpret the result in terms of standard error, R2 and significance
of regression model.

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 Introduction to Statistical Inference

Introduction
Parameter
Statistic
Sample Space
Sampling Distribution
Standard Error

Testing of Hypothesis

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Hypothesis
Statistical Hypothesis
o Simple Hypothesis
o Composite Hypothesis
Null Hypothesis
Alternative Hypothesis
Test Statistic
Null Distribution
Critical (Rejection) Region
Acceptance Region
Errors in Hypothesis Testing
Actual Fact
Decision based on
sample
observation
H0 is true
Accept H0
H0 is true
Reject H0
H0 is false
Accept H0
H0 is false
Reject H0
Type I Error
Type II Error
Size of the test (Level of Significance)
Power of the test
One Tail Test
Two Tail Test
Procedure in Hypothesis Testing
o Formulation of Hypothesis
o Set up a suitable significance level
o Select the test criterion
o Computation
o Decision making

Inference

Error

Correct Decision
Incorrect Decision
Incorrect Decision
Correct Decision

-Type I
Type II
--

 Large Sample Tests (Z Tests)

Z-Test for Single Mean (Theory)
Here the null hypothesis is given by,
H0: = 0
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 0 (Two tail test)
b) H1: > 0 (One tail test Upper)
c) H1: < 0 (One tail test Lower)
Now the test statistic under H0 is given by,
0
=
~ (0,1)

denotes sample mean

0 denotes standard value at which the population mean is tested
denotes population standard deviation
denotes sample size
(Noted: If is not specified then we need to use the sample standard deviations)
Decision Making
a) If we are testing H0: = 0 vs H1: 0 at level of significance, then we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0: = 0 vs H1: > 0 at level of significance, then we can reject
H0 if >
c) If we are testing H0: = 0 vs H1: < 0 at level of significance, then we can reject
H0 if < -
Here and 2 are Normal Table (Z) values at level of significance
Z-Test for Two Means (Theory)
Here the null hypothesis is given by,
H0: 1 = 2
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 1 2 (Two tail test)
b) H1: 1 > 2 (One tail test Upper)
c) H1: 1 < 2 (One tail test Lower)
Now the test statistic under H0 is given by,
1 2
=
~ (0,1)
1 2 2 2

+
1

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1 denotes sample mean for a sample of size 1 from population 1

2 denotes sample mean for a sample of size 2 from population 2
1 denotes population standard deviation from population 1
2 denotes population standard deviation from population 2
(Noted: If , is not specified then we need to use the sample standard deviation , )
Decision Making
a) If we are testing H0: 1 = 2 vs H1: 1 2 at level of significance then, we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0:1 = 2 vs H1: 1 > 2 at level of significance then, we can reject
H0 if >
c) If we are testing H0: 1 = 2 vs H1: 1 < 2 at level of significance, then we can reject
H0 if < -
o Examples on Z-Test (Mean)
1. An aircraft manufacturer needs to buy aluminium sheets of 0.05 inch in thickness. Thinner
sheets would not be appropriate and thicker sheets would be too heavy. The aircraft
manufacturer takes a random sample of 100 sheets and finds that their average thickness is
0.048 inch and their standard deviation is 0.01 inch. Should the aircraft manufacturer by the
aluminium sheets from the supplier?
2. A company manufacturing automobile tyres finds that the tyre life is normally distributed with
mean 40000 kms and standard deviation of 3000 kms. It is believed that a change in the
production process will result in a better product and the company goes ahead in adopting the
new process. As a pilot study 100 new tyres are randomly selected from the lot and tested.
From the test result it is found that the average life of these new tyres is 40900 kms. Can it be
concluded that the new tyres are significantly better than the old ones? Test at 1% l.o.s.
3. It has been found from experience that the average tensile strength of an alloy is 500 pounds
with standard deviation of 40 pounds. From the supplies, received during the current month,
a sample of 50 units were tested which showed an average tensile strength of 450 pounds. Can
we conclude that the alloy supplied is inferior?
4. A potential buyer wants to decide which of the two brands of electric bulbs he should buy as
he wants to buy them in bulk. As a specimen, he buys 100 bulbs of each of the two brands
A and B. On testing these bulbs, he finds that brand A has mean life of 1200 hours with
standard deviation 50 hours and brand B has mean life of 1150 hours with standard deviation
40 hours. Do the two brands differ significantly in terms of average life span? Test at 2% l.o.s.

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5. An automobile company is interested in testing the average mileage given by one of the car
brand in two different cities i.e. Delhi and Mumbai. The company surveyed 100 car owners in
Delhi and found the average mileage is 12 kms and it surveyed 150 owners in Mumbai and
found the average mileage is 12.5 kms. The standard deviation for mileage of this brand of car
is known to be 0.9 kms. Can we conclude that the cars gives better average in Mumbai as
compared to Delhi? Test at 5% l.o.s.
Examples on Z test using MS Excel
1. A business school in its advertisement claims that the average salary of its graduates in a
particular lean year is at par with the average salaries offered at the top five business schools.
A sample of 35 graduates, from the business school whose claim was to be verified, was taken
at random. The average salary offered at the top five business schools in that year was given
as Rs.750000. Test the validity of the claim.
Student
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
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Salary(000's)
750
600
600
650
700
780
860
810
780
670
690
550
610
715
755
770
680
670
740
760
775
845
870
640
690
715
630
685
780
635

31
32
33
34
35

770
665
780
550
620

2. A large organization produces electric light bulbs in each of its two factories (A and B). It is
suspected that the quality of production from factory A is better than factory B. To test this
assertion the organization collets samples from factory A and B, and measures how long each
light bulb works (in hours) before it fails (relevant data is given below). Both population
variances are known i.e. Var(A)=52783 and Var(B)=61560. Test the assertion at 5% l.o.s.
Factory A
Factory B
900
1052
1276
947
1421
886
1014
788
1246
1188
1507
928
975
983
1177
970
1246
766
875
1369
816
737
983
1114
1119
354
988
1347
1137
1062
1227
756
858
1052
941
754
1299
990
1110
950
929
783
843
816
1156
658
867
504
1454
1076
1403
500
1165
1025
1653
649
1288
1166
1187
498
945
1002
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 Z-Test for Single Proportion (Theory)

Here the null hypothesis is given by,
H0: = 0
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 0 (Two tail test)
b) H1: > 0 (One tail test Upper)
c) H1: < 0 (One tail test Lower)
Now the test statistic under H0 is given by,
0
=
~ (0,1)

0
0

denotes sample proportion

0 standard value at which the population proportion P is tested
0 = 1 0
denotes sample size
Decision Making
a) If we are testing H0: = 0 vs H1: 0 at level of significance then we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0: = 0 vs H1: > 0 at level of significance then we can reject
H0 if >
c) If we are testing H0: = 0 vs H1: < 0 at level of significance then we can reject
H0 if < -
Z-Test for Two Proportions (Theory)
Here the null hypothesis is given by,
H0: 1 = 2
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 1 2 (Two tail test)
b) H1: 1 > 2 (One tail test Upper)
c) H1: 1 < 2 (One tail test Lower)
Now the test statistic under H0 is given by,
1 2
=
~ (0,1)
1
1
( + )
.
.

Where =

1
2
1 1 +2 2
1 +2

and = 1

1 denotes sample proportion for a sample of size 1 from population 1

2 denotes sample proportion for a sample of size 2 from population 2
1 denotes population proportion for population 1
2 denotes population proportion for population 2
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Decision Making
a) If we are testing H0: 1 = 2 vs H1: 1 2 at level of significance then we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0:1 = 2 vs H1: 1 > 2 at level of significance then we can reject
H0 if >
c) If we are testing H0: 1 = 2 vs H1: 1 < 2 at level of significance then we can reject
H0 if < -
o Examples on Z-Test (Proportion)
1. It is known from the past data that 10% of the families in a certain locality subscribe to a
periodical called Outlook. Of late, there has been some apprehension that the subscription rate
has declined. In order to test whether there has been a decline, a random sample of 100 families
were surveyed from the locality and it was found that 7 families did subscribe for Outlook.
Can it be concluded that the subscription rate has really declined? Test at 5% l.o.s.
2. The owner of a departmental stores claims that majority of his customers use credit/debit card
as their payment option. To verify the claim made, 800 customers were randomly observed
during the given time and it was found that 420 made payment using credit/debit card. Discuss
whether the information supports the view and test the same at 1% l.o.s.
3. A cable TV operator claims that 50% of the homes in a city have opted for his services. Before
sponsoring advertisements on the local cable channel, a firm conducted a survey and found
that 280 homes out of 600 to have cable TV service provided by the operator. On this basis of
the data can we accept the claim made by the cable operator? Test at 1% l.o.s.
4. A company is considering two different ads for promotion of a new product. After watching
both the ads, the management believes that advertisement A is more effective than
advertisement B. Two test market areas with virtually identical consumer characteristics are
selected. Advertisement A is used in one area and B in another. In a random sample of 60
customers who saw advertisement A, 18 tried the product and similarly a random sample of
100 customers who saw advertisement B, 22 tried the product. Does this indicate that
advertisement A is more effective than advertisement B, test at 5% l.o.s.
5. You obtain a large number of components to an identical specification from 2 sources. You
notice that some of the components are from the suppliers own plant at Pune and some are
from the plant at Bangalore. You would like to know whether the proportion of defective
components are the same or there is a difference between them. For this, you take a random
sample of 600 components from each plant and find the sample proportion of defective
components as 0.015 and 0.017 respectively. Test at 1% l.o.s., whether the proportion of
defectives differ significantly with respect to these two plants.
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 Small Sample Tests (t Tests)

t-Test for Single Mean (Theory)
Here the null hypothesis is given by,
H0: = 0
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 0 (Two tail test)
b) H1: > 0 (One tail test Upper)
c) H1: < 0 (One tail test Lower)
Now the test statistic under H0 is given by,
0
=
~ ( 1)degree of freedom

1
denotes sample mean
0 denotes standard value at which the population mean is tested
denotes sample standard deviation
denotes sample size
Decision Making
a) If we are testing H0: = 0 vs H1: 0 at level of significance then, we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0: = 0 vs H1: > 0 at level of significance then, we can reject
H0 if >
c) If we are testing H0: = 0 vs H1: < 0 at level of significance then, we can reject
H0 if < -
Here and 2 are t distribution table values at level of significance
t-Test for Two Means (Theory)
Here the null hypothesis is given by,
H0: 1 = 2
For the above null hypothesis, we may have any one of the following alternatives,
a) H1: 1 2 (Two tail test)
b) H1: 1 > 2 (One tail test Upper)
c) H1: 1 < 2 (One tail test Lower)

Now the test statistic under H0 is given by,

1 2
=
~ (1 + 2 2)degree of freedom
1 1 2 + 2 2 2 1 + 2

+ 2 .( . )
1

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1 denotes sample mean for a sample of size 1 from population 1

2 denotes sample mean for a sample of size 2 from population 2
1 denotes sample standard deviation for a sample of size 1 from population 1
2 denotes sample standard deviation for a sample of size 2 from population 2
Decision Making
a) If we are testing H0: 1 = 2 vs H1: 1 2 at level of significance then we can reject
H0 if is lying outside the interval (2 , +2 )
b) If we are testing H0:1 = 2 vs H1: 1 > 2 at level of significance then we can reject
H0 if >
c) If we are testing H0: 1 = 2 vs H1: 1 < 2 at level of significance then we can reject
H0 if < -
o Examples on t-Test (Mean)
1. The mean nicotine content of a brand of cigarette is 20.0 mgs. A new process is proposed to
lower the nicotine content without affecting the quality. To test the new process, 16 cigarettes
are selected at random from the output obtained from the test plant. The sample mean nicotine
content is found to be 18.5 mg with standard deviation of 2 mg. Is the claim for the new
process justified? Test at 5% l.o.s.
2. A car manufacturer claims that its new car gives a mileage of atleast 15 kms/litre of petrol. A
sample of 10 cars is taken at random, and their mileage recorded are as follows:
16.2, 15.7, 16.3, 16.0, 15.8, 15.7, 15.6, 15.6, 15.7, 15.4
Is there any statistical evidence to support the claim of the manufacturer about the mileage?
3. A local car dealer wants to know if the purchasing habits of a buyer buying extras have
changed. He is particularly interested in male buyers. Based upon the previous experience he
finds that the average of extras purchased is $2000. As a test he collects details of extras
purchased by the last 7 male customers i.e. ($) 2300, 2386, 1920, 1578, 3065, 2312 and 1790.
Test whether the extras purchased on average has changed.

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4. Two types of drugs viz. A and B were used on 5 and 7 patients respectively for reducing their
weight. Drug A was imported and drug B was indigenous. The decrease in the weight after
using the drug for six months was as follows:
Drug A
10
12
13
11
14

Drug B
8
9
12
14
15
10
9
Test whether there is any significant difference in the efficacy of the two drugs with respect
to average weight lost.
5. A physical instructor has an opinion that students who are associated with athletics are taller
in height as compared to those who do not. Among 16 students who were selected at random
it was found that 6 students were associated with athletics and the remaining were not
associated with athletics. Their heights recorded are as belowHeight (cms)
Athletes
Non-Athletes
176
172
173
167
171
175
172
169
177
169
169
172
174
170
167
170
Test at 1 % l.o.s whether the opinion of the physical instructor is valid?

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 Paired t-Test (Theory)

Here the null hypothesis is given by,
H0: There is no significant difference after as compared to before (1 = 2 )
For the above null hypothesis have the following alternative,
H1: There is a significant difference after as compared to before
(1 > 2 1 < 2 )
Now the test statistic under H0 is given by,

=
~ ( 1)degree of freedom

1
Where, =

and =

Here d = Before Score After Score / Score 1 Score 2

D the standard value at which the hypothesis is tested
(Note: If D is not specified then take it as zero)
Decision Making
a) If we are testing H0:1 = 2 vs H1: 1 > 2 at level of significance then we can reject
H0 if >
b) If we are testing H0: 1 = 2 vs H1: 1 < 2 at level of significance then we can reject
H0 if < -
o Examples on Paired t-test
6. Super Slim is advertising a weight reduction programme which claims that more than 10 lbs
weight loss is possible in first 30 days. Twenty six subjects were independently and randomly
selected for study, and their weights before and after the weight loss programme were
recorded. The data is as followWeight (lbs)
Before After
170
170
159
153
162
129
153
143
177
137
167
134
158
133
178
128
141
152
163
142
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154
140
159
154
159
143
138
147
161
142
156
149
165
136
158
154
151
140
165
145
155
125
154
140
147
125
156
141
155
146
169
135
Test the claim at 5% l.o.s.
7. A company has reorganized its sales department. The following data shows its weekly sales
(in Rs lakh) before and after reorganization. The period for comparison is taken from Jan to
March in two successive yearsWeekly Sales
Before After
12
16
15
17
13
14
11
13
17
15
15
14
10
12
11
11
18
17
19
22
Comment and draw valid conclusion.

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8. A local pizza restaurant and a local branch of a national chain are located across the street
from a college campus. The local pizza restaurant advertises that it delivers to the dormitories
faster than the national chain. In order to determine whether this advertisement is valid, you
and some of friends have decided to order pizzas from both the outlets at different time. The
delivery times in minutes are as given belowLocal
Chain
16.8
22
11.7
15.2
15.6
18.7
16.7
15.6
17.5
20.8
18.1
19.5
14.1
17
21.8
19.5
13.9
16.5
20.8
24
Test the claim at 1% l.o.s.
Assignment 3
1. The cinema-goers were 800 people out of a sample of 1000 persons during the period of a
fortnight in a town where no TV programme was aired. Similarly cinema-goers were 700
people out of a sample of 2800 persons during a fortnight where a TV programme was aired.
Do you think that there has been a significant decrease in proportion of cinema-goers due to
the introduction of TV programmes?
2. An insurance agent has claimed that the average age of policy holders who insured through
him is less than the average for all agents which he estimates as 30 years. A random sample
of 100 policy holders who have insured through him gave the following age distributionAge in years No of persons insured
16 20
12
21 25
22
26 30
20
31 35
30
36 40
16
Test the claim at 1% l.o.s.

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3. Two salesmen A and B are working in a certain district. From a sample survey conducted by
the head office, the following results were obtained. State whether there is any significant
difference in the average sales between the two salesmen?
A
B
Number of Sales
20
15
Average Sales (in Rs000)
170
200
Standard Deviation (in Rs000)
20
25
4. Ten persons were appointed in officer cadre in an office. Their performance was evaluated by
giving a test and the marks were recorded out of 100. They were given two months training
and another test was held and the marks were recorded out of 100. The details are as belowEmployees Marks Before Training Marks After Training
A
80
84
B
76
70
C
92
96
D
60
80
E
70
70
F
56
52
G
74
84
H
56
72
I
70
72
J
56
50
Can it be conclude that the employees have benefited by the training?
5. As per the ET-TNS consumer confidence survey, published in Economic Times dt. 10th
November, 2006, the consumer confidence indices for some of the cities changed from
December 2005 to September 2006, as follows. Is the difference significant?
City
December 2005 September 2006
Delhi
106
83
Jaipur
117
142
Mumbai
112
126
Ahmedabad
123
108
Kolkota
83
84
Bhubaneshwar
137
144
Bangalore
137
138
Kochi
113
134

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 Chi-Square Test for Independence of Attributes (Theory)

Here the null hypothesis is given by,
H0: The two attributes are independent
For the above null hypothesis have the following alternative,
H1: The two attributes are dependent
Here the observed frequencies are given in tabular form called Contingency table.
We need to calculate the expected frequencies using the formula,
=

Now the test statistic under H0 is given by,

( )2
2
=
~ 2 [( 1)x(c 1)]degree of freedom

Where,
O denotes Observed Frequencies
E denotes Expected Frequencies
r denotes number of rows
c denotes number of columns
Decision Making
We are testing H0 vs H1 at level of significance, where we can reject H0 if 2 > 2
2 denotes chi square table value at level of significance

o Examples on Chi-Square Test for Independence of Attributes

1. The marketing agency gives the following information about the age group of the sample
informants and their liking for a particular model of scooter which a company plans to
introduce:
Age group of the informants
Below 20 20-39
40-59 Total
Liked
125
420
60
605
Disliked
75
220
100
395
Total
200
640
160
1000
On the basis of the above data can it be concluded that the model appeal is independent of the
age group of the informants?

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2. 1000 employees at a company are graded according to their performance and economic
conditions. Test at 1 % level of significance whether there is any association between the
performance and economic condition of the employees.
Performance
High Medium Low Total
Economic
Condition
Total

Rich
Poor

160
140
300

300
100
400

140
160
300

600
400
1000

3. In order to test whether attributes smoking and literacy are independent, a survey of 210
literates and 250 illiterates was conducted. The result of the survey is given belowSmoker
Non
Total
Smoker
Education Literate
13
197
210
Background Illiterate
46
204
250
Total
59
401
460
Test at 1 % level of significance whether there is any association between the attributes at
5% l.o.s?
4. Suppose a university sampled 485 of its students to determine whether males and females
differed in preference for the five courses offered. The data obtained is tabulated as belowCourses offered
Gender
Male
Female
Science
45
86
Engineering
52
67
Medicine
50
19
Management
50
32
Arts
69
15
Test whether there exists any association between the choice of the course and the gender of
the respondent.

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 Chi-Square Test for Goodness of Fit

Here the null hypothesis is given by,
H0: The theoretical and observed frequency distribution is a good fit.
For the above null hypothesis have the following alternative,
H1: The theoretical and observed frequency distribution is not a good fit.
Now the test statistic under H0 is given by,
( )2
2 =
~ 2 (n k 1)degree of freedom

Where,
O denotes Observed Frequencies
E denotes Expected Frequencies
k denotes Additional Constraints
Decision Making
We are testing H0 Vs H1 at level of significance, where we can reject H0 if 2 > 2
2 denotes chi-square table value at level of significance
(Note: If the expected frequencies are found to be less than 5 then it should be pooled with either
the preceding or succeeding frequency term)
o Examples on Chi-Square Test for Independence of Attributes
1. A survey of 64 families with 3 children each is conducted and the number of male children
in each family is noted. The results are tabulated as followsNo of Male Children
0
1
2
3
Total
No of Families
6
19
29
10
64
Test whether male and female children are equi-probable?
2. The following data relates to the number of mistakes on each page of a book containing 180
pages.
No of Mistakes / page
0
1
2
3
4
5
Total
No of Pages
130
32
15
2
1
0
180
Test whether Poisson distribution is a good fit to the observed distribution.
3. A sample analysis of examination results of 200 MBAs was made. It was found that 46
students had failed, 68 students secured pass class, 62 secured second class and the remaining
secured first class. Are these figures commensurate with the general examination result that is
in the ratio of 2:3:3:2 for various categories respectively? Test at 1% l.o.s.
4. The divisional manager of a retail chain believes that average number of customers entering
each of the five stores in his division weekly is the same. In a given week, the manager reports
the following number of customers in the stores as: 3000, 2960, 3100, 2780, 3160. Test the
divisional managers belief at 5% l.o.s.
25 | P a g e

Assignment 4
1. A trainee risk manager for an investment bank has been told that the level of risk is related to
the industry type. For the sample data presented in the contingency table analyze whether
perceived risk is dependent upon the type of industry identified?
Industry Class
Manufacturing
Retail
Financial
Level of
Risk

Low
Moderate
High

81
46
22

38
42
26

16
33
29

2. An employment agency has recently implemented a new training programme to develop the
interview skills of potential job applicants. Based upon the collected data can we say
confidently that the data can be modelled using binomial distribution? (Test at 1% l.o.s).
No of Interview Successes
0
1
2
3
Frequency
78
143
43
13
3. A motorway safety officer believes that the number of accidents per week occurring on a
stretch of motorway can be modelled using Poisson distribution. A sample data collect for the
study is given belowNo of accidents/week
0
1
2
3
4
5
6
7
Frequency
10
12
12
9
5
3
1
0
Test whether Poisson distribution is a good fit to the observed distribution.
4. A university has recently set up a satellite department within a local college of higher
education. The university claims that 35%, 26%, 25% and 14% of the undergraduate students
are in department A, B, C and D respectively. A random sample of 320 students finds the
following number of students in department A-D: 132, 89, 64 and 35 respectively. Test the
claim at 1% l.o.s.

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 Analysis of Variance (ANOVA)

Introduction

One Way Analysis of Variance (One Way ANOVA) Theory

Here the null hypothesis is given by
H0: There is no significant difference between the population means
And the corresponding alternative hypothesis is given by
H1: There is a significant difference between atleast one pair of population means
Here the calculation is done using ANOVA table called One Way ANOVA Table
Sources of
Sum of
Degree of
Mean Sum of
F-Ratio
Variation
Squares
Freedom
Squares
(SS)
(MSS)
Between the
SSB
k-1
MSB=SSB/k-1
MSB/MSE
Sample
Within the
SSE
n-k
MSE=SSE/n-k
Sample
Total Variation
SST
n-1
Now the test statistics is given by =

~ ( 1, )

Here,
n denotes total number of observations
k denotes number of entities under study
Decision Making
We are testing H0 Vs H1 at level of significance, where we can reject H0 if >
denotes F table value at level of significance
o Examples on One Way ANOVA
1. To assess the significance of possible variation in performance of a company (which has
four plants in different cities) was conducted and the results are given below.
Plant A Plant B Plant C Plant D
08
12
18
13
10
11
12
09
12
09
16
12
08
14
06
16
07
04
08
15
Carry out analysis of variance and interpret the result.

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2. The following table gives the yields on 15 sample plots under three varieties of seeds namely
A, B and C.
A: 20, 21, 23, 16, 20
B: 18, 20, 17, 15, 25
C: 25, 28, 22, 28, 32
Find out if the average yields of the land with different varieties of seed show significant
differences.

Two Way Analysis of Variance (Two Way ANOVA) without Replication

Theory
Here the null hypothesis are given by
H0R: There is no significant difference between the factors along the rows
H0C: There is no significant difference between the factors along the columns
And the corresponding alternative hypothesis is given by
H1R: There is a significant difference between the factors along the rows
H1C: There is a significant difference between the factors along the columns
Here the calculation is done using ANOVA table called Two Way ANOVA Table
Sources of
Sum of
Degree of
Mean Sum of
F-Ratio
Variation
Squares
Freedom
Squares
(SS)
(MSS)
Between the
SSR
r-1
MSR=SSR/r-1
MSR/MSE
Rows
Between the
SSC
c-1
MSC=SSC/c-1
MSC/MSE
Columns
Residual
SSE
(r-1)(c-1)
MSE=SSE/(r-1)(c-1)
Total Variation
SST
Now the test statistics is given by-

n-1

1 =

~ ( 1, (r 1)(c 1))

2 =

~ ( 1, (r 1)(c 1))

Here,
n denotes total number of observations (n=cr)
r denotes number of rows
c denotes number of columns

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Decision Making
1. We are testing H0R Vs H1R at level of significance, where we can reject H0 if 1 >
1
1 denotes F table value at level of significance for (r-1,(r-1)(c-1))degree of freedom
2. We are testing H0C Vs H1C at level of significance, where we can reject H0 if 2 >
2
2 denotes F table value at level of significance for (c-1,(r-1)(c-1))degree of freedom
o Examples on Two Way Analysis of Variance (Two Way ANOVA) without Replication
3. A company has appointed four salesmen A, B, C and D and observed their sales in three
seasons summer, winter and monsoon. The figures (in Rs. Lakh) are given in the
following tableSalesmen
Seasons
A
B
C
D
Summer
36
36
21
35
Winter
28
29
31
32
Monsoon
26
28
29
29
Using 5% l.o.s, perform analysis of variance on the above data and interpret the results.
4. The following data represents the number of units of production per day turned out by
four different workers using five different machines:
Machine Type
Workers
A
B
C
D
E
I
4
5
3
7
6
II
5
7
7
4
5
III
7
6
7
8
8
IV
3
5
4
8
2
On the basis of the data given in the table, can it be concluded thati. The mean productivity is the same for different machines
ii. The workers dont differ with regard to productivity.

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o Examples on Two Way Analysis of Variance (Two Way ANOVA) with Replication
5. The following data refers to the yields of rice on two plots each with combination of the
verity of rice and type of fertilizers
Fertilizer A
Fertilizer B
Fertilizer C
Fertilizer D
Verity 1
Verity 2
Verity 3

6
5
7
6
8
7

4
5
6
7
5
5

8
6
6
7
10
9

6
4
9
8
9
10

Test the above case at 1% l.o.s.

6. Reliable tyre dealer wishes to assess the quality of lives of three different brands of tyres
sold by it. It also wants to assess whether the lives of these tyres is the same for four brands
of cars on which they are been used. Thus, each brand of tyres was tested on each of the
four brands of cars. Further, the dealer wishes to ascertain the equality of lives for each
combination of brands of tyre and car. The mileage obtained are given as followsCar A
Car B
Car C
Car D
Tyre 1

Tyre 2

Tyre 3

32
31
33
31
38
37
38
39
32
30
31
33

Test the above case at 5% l.o.s.

30 | P a g e

30
29
28
30
39
40
41
39
33
32
30
31

34
33
36
35
40
41
42
43
40
42
41
40

36
38
39
40
41
39
40
42
45
43
42
46

Assignment 5
1. Three training methods were compared to see if they led to greater productivity after training.
The productivity measures for individuals trained by different methods are as below36
26
31
20
34
25
Method 1
40
29
38
32
39
34
Method 2
32
18
23
21
33
27
Method 3
At 1 % l.o.s test whether three training methods lead to different levels of productivity?
2.

The following table gives the data on the performance of three different detergents at three
water temperatures. The performance was obtained on the basis whiteness readings based
on specially designed equipment for nine loads of washingDetergent
Water Temp.
A
B
C
Cold Water
45
43
55
Warm Water
37
40
56
Hot Water
42
44
46
Analysis the above case using ANOVA at 5% l.o.s.

3. The manager of a bank in Mumbai is responsible for ATM operations in three areas in the
city, viz. Andheri, Vile Parle and Santa Cruz. When he took over the operations, he faced the
problem of cash running out from the ATM machines. To study the problem he collected data
from all the three areas to check whether ATMs in all three areas need equal amount of cash.
He also wanted to know whether ATMs at different locations needed the same amount of cash
or not. So he collected the following data about cash withdrawals(in Rs. Lakhs) during the
last four months which is tabulated as belowAreas
Locations
Station
Market
Bank
40
37
35
Andheri
39
39
34
41
37
38
39
36
32
38
36
34
Santa Cruz
42
37
35
40
34
33
39
35
34
38
39
35
Vile Parle
39
34
35
39
37
34
41
36
33
Analyze the above case at 1% l.o.s.

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