Business Statistics

Level 3

Model Answers
Series 2 2005 (Code 3009)

Business Statistics Level 3

Series 2 2005

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(3)

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Business Statistics Level 3

Series 2 2005
Question 1 (a) Describe the characteristics of the normal distribution. (4 marks) A company employs a team of electricians to maintain its machines. The time taken to repair a machine follows a normal distribution with a mean time of 20 minutes and a standard deviation of 4 minutes. Whilst the machine is not working it is taken out of service. (b) Calculate the probability that the time taken to repair a machine is: (i) (ii) less than 18 minutes between 18 minutes and 26 minutes. (6 marks) (c) The electricians wish to establish a benchmark time within which they can guarantee a 90% completion rate. What is that benchmark time? (4 marks) On some occasions when a machine needs repairing an electrician is not available. The mean time taken for an electrician to become available is 10 minutes with a standard deviation of 5 minutes. The time taken for an electrician to become available is normally distributed. (d) If an electrician has to become available, what is the probability that finding an electrician and completing the repair takes more than 45 minutes? (6 marks) (Total 20 marks)

Model Answer for Question 1 (a) Symmetrical bell shaped curve, asymptotic to the x axis, mean, median and mode are equal.

(b)

z=

x
sd

z=

18 20 2 1 = = 4 4 2 Answer = 1 0.692 = 0.308

Proportion = 0.692

z=

x
sd

z=

26 20 6 = = 1.5 4 4

Proportion = 0.933 therefore greater than 26 mins = 0.067 Between 18 minutes and 26 minutes. = 0.692 0.067 = 0.625 (c) 90% or 0.9 gives z = 1.3 1.3 =
x sd = x 20 4

1.3 x 4 = x 20

x = 5.2 + 20 = 25.2
(d) Joint mean = x 1 + x 2 = 20 + 10 = 30 Joint standard deviation = =
42 + 52 = 41 = 6.4

sd1 + sd 2

z= x sd

z = 45 30 = 15 = 2.3 6 .4 6 .4

Proportion = 0.989 Probability more than 45 = 1 0.989 = 0.011

Question 2

The table below shows information for a random sample of 10 workers. Their ages and salaries are given in the table below:

Worker

Age (years)

Salary 000

a b c d e f g h i j (a) Draw a scatter diagram.

33 55 45 56 38 42 54 22 31 37

25.3 36.3 14.9 25.2 35.9 25.2 36.1 14.9 25.8 26.9

(3 marks) (b) Calculate the product-moment correlation coefficient and comment on your answer. (11 marks) (c) Test whether the correlation coefficient differs significantly from zero. (6 marks)
(Total 20 marks)

Model Answer for Question 2

(a)

(b)

x
33 55 45 56 38 42 54 22 31 37 413

y
25.3 36.3 14.9 25.2 35.9 25.2 36.1 14.9 25.8 26.9 266.5

x2
1089 3025 2025 3136 1444 1764 2916 484 961 1369 18213

y2
640.09 1317.69 222.01 635.04 1288.81 635.04 1303.21 222.01 665.64 723.61 7653.15

xy
834.9 1996.5 670.5 1411.2 1364.2 1058.4 1949.4 327.8 799.8 995.3 11408

x
r=

x 2

y 2

xy

nxy (x )(y ) (nx 2 (x ) 2 )(ny 2 (y ) 2 )

r=

(10 x 18,213 413 )(10 x 7,653.15 266.5 )

2 2

10 x 11,408 413 x 266.5

r=

114,080 110,064.5

(182,130 170,569 )(76,531.5 71,022.25 )

4,015.5 11,561 x 5,509.25

r = 0.503 There is weak positive linear relationship between the variables.

CONTINUED ON THE NEXT PAGE

Model Answer for Question 2 continued

Null hypothesis: the correlation coefficient does not differ from zero Alternative Hypothesis: the correlation coefficient does differ from zero Critical t value, 8 degrees of freedom = 2.31/3.36
r n2 1 r
2

t=

t=

0.503 10 2 1 (0.503)
2

t=

1.4231 1 0.25311

1.4231 0.8642

= 1.647 Conclusion: The calculated value of t is less than the critical t value therefore do not reject the null hypothesis. The correlation does not differ from zero.

Question 3

(a) Describe the four components of a time series decomposition. (4 marks) The table below shows the quarterly imports figures for a country in billions: Year 2002 2003 2004
Quarter 1 Quarter 2 Quarter 3 Quarter 4

15 20 31

25 38 47

38 51 60

41 58 73

(b) Calculate the centred moving average for the quarterly imports and estimate the average seasonal variations. (10 marks) (c) Forecast the level of imports for the four quarters of 2005 and comment on the likely accuracy ofyour answer. (6 marks)
(Total 20 marks)

Model Answer for Question 3 continued

(a) The four components are the long term trend, the cyclical movement, the seasonal variation and the residual or random element. (b) Imports B M Total M Avg 1 M Avg 2 15 or Trend 119 25 30.375 124 38 29.75 32.625 41 31 137 35.875 20 34.25 150 39.625 38 37.5 167 43.125 51 41.75 178 45.625 58 44.5 187 47.875 31 46.75 196 47 49 50.875 211 60 52.75 73 1m 1cao 1m 1cao 1m 1cao Differences

7.625 8.375 -15.875 -1.625 7.875 12.375 -16.875 -3.875

1m 1cao

Qtr 1 -15.875 -16.875 Average seasonal variation -16.375

Qtr 2 -1.625 -3.875 -2.75

Qtr 3 7.625 7.875 7.75

Qtr 4 8.375 12.375 10.375

Quarterly growth rate =

Last trend First trend Number of trend values 1 50.875 30.375 8 1

= 2.929 Forecast Quarter 1 = (50.875 + 2.929 x 3) -16.375 Quarter 2 = (50.875 + 2.929 x 4) -2.75 Quarter 3 = (50.875 + 2.929 x 5) + 7.75 Quarter 4 = (50.875 + 2.929 x 6) +10.375 = 43 = 60 = 73 = 79

The forecast should be fairly accurate as the data is reasonably stable and the length of forecast is not too great.

Question 4

An estate agent took a random sample of house buyers to find out if there was a relationship between family income and house value. Family Income
House Value Under 25,000 25,000 and under 50,000 50,000 and over

Under 100,000 100,000 and under 200,000 200,000 and over

30 110 40

50 120 30

10 40 70

(a) Test for association between family income and house value. (12 marks) (b) By combining the data for income levels test to see if the proportion of houses over 200,000 sold by the estate agent differs significantly from the national proportion of 0.26. (8 marks)
(Total 20 marks)

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Model Answer for Question 4

(a) Null hypothesis: there is no association between the value of the house and family income. Alternative hypothesis: there is association between the value of the house and family income. Degrees of freedom = (3 1)(3 1) = 4 Critical 2 0.05/0.01 = 9.49/13.28 Observed 30 110 40 180 Expected 32.4 97.2 50.4 180 Contributions To 2 0.178 1.685 2.146 50 120 30 200 36 108 56 200 5.444 1.333 12.071 10 40 70 120 21.6 64.8 33.6 120 6.229 9.491 39.433 2= 90 270 140 500 90 270 140 500

78.007

Conclusions: The value of 2 is greater than the critical value. The difference is highly significant. Reject the null hypothesis. There is a highly significant association between the value of the house and family income.

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Model Answer for Question 4 continued

(b) Null hypothesis: there is no significant difference between the national proportion of people buying houses over 200,000 and the estate agents sales proportion. Alternative hypothesis: there is a significant difference between the national proportion of people buying houses over 200,000 and the estate agents sales proportion. Critical z 0.05 = 1.96
z= p (1 ) n 0.02 0.0003848 = 0.28 0.26 0.26(1 0.26) 500

z=

= 1.0195 (1.02)

Conclusion: As the calculated value of z is less than the critical value of z do not reject the null hypothesis. There is no significant difference between the national proportion of people buying houses over 200,000 and the estate agents sales proportion.

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Question 5

(a) Explain the meaning of the term the sampling distribution of the mean illustrating the difference in application when there are large and small sample sizes. (6 marks) Random samples were taken of the price of three bedroomed apartments in urban and rural areas.
Urban area 000 Rural area 000

149 155 141 165 189 135 149 187 146 153

189 157 142 128 155 169 175 176 194

(b) Test to discover whether the price of three-bedroomed apartments is significantly cheaper in urban areas than rural areas. (14 marks)
(Total 20 marks)

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Model Answer for Question 5

(a) As samples of a given size are taken the mean values will vary. The distribution of the mean values is referred to as the sampling distribution of the mean. When the sample size is large, 30 or greater, the sampling distribution is normally distributed with the mean of the sample means equal to the population mean. When the sample size is small and the data is normally distributed, less than 30, the sampling distribution follows the t distribution. (b) Null Hypothesis: The price of a three bedroomed apartment in urban areas is not significantly cheaper than the price of a three bedroomed apartment in rural areas. Alternative Hypothesis: The price of a three bedroomed apartment in urban areas is significantly cheaper than the price of a three bedroomed apartment in rural areas. Degrees of freedom = n + m 2 = 10 + 9 2 = 17 Critical t = 2.11/2.90

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CONTINUED ON THE NEXT PAGE

Model Answer for Question 5 continued

x
149 155 141 165 189 135 149 187 146 153 1569 x

y
189 157 142 128 155 169 175 176 194

( x x )2

( y y)2

62.41 3.61 252.81 65.61 1030.41 479.61 62.41 906.01 118.81 15.21

576 64 529 1369 100 16 100 121 841

1485 2996.9 3716 y ( x x ) 2 ( y y ) 2

x =

1,569 10

= 156.9

y=

1,485 = 165 9 2,996.9 + 3,716 9 +82 6,712.9 = 19.87 17

Pooled sd =

( x x )2 + ( y y)2 n+m 2

t=
s

xy
1 1 + n m

t=

156.9 165 19.87 1 1 + 10 9

t=

8. 1 = 0.887 9.12

Conclusion: The calculated value is less than the critical value, so there is insufficient evidence to reject the null hypothesis. The price of a three bedroomed apartment in urban areas is not significantly cheaper than the price of a three bedroomed apartment in rural areas.

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Question 6

(a) Explain the benefits to a business of using a quality control system. (4 marks) Quality control procedures are used which set the warning limits at the 0.025 probability point and action limits at the 0.001 probability point. This means, for example, that the upper action limit is set so that the probability of the mean exceeding the limit is 0.001. The length of a product is set at 300 cm with a standard deviation of 2 cm. Samples of 9 items at a time are taken from the production line to check the accuracy of the manufacturing process. (b) (i) (ii) Draw a control chart to monitor the process. (8 marks) The first 7 samples taken had the following mean lengths (in cm): Length cm 298.4 302.5 301.6 298.2 302.2 302 299.8

Plot these data on your control chart and comment appropriately. (4 marks) (iii) If the sample mean had been wrongly set at 299 cm, assuming the standard deviation remains the same and the sample size is 9, what is the probability that a sample mean lies outside the lower warning limit? (4 marks)
(Total 20 marks)

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Model Answer for Question 6

(a) The most important benefit to a business of a good quality control system is the better reputation it will have with its customers. It allows the company to detect faults in a system quickly and be able to rectify them. This should reduce waste and cut costs. It should ensure that the output is of good quality. (b) (i)
Quality Control Chart
303.5 302.5 UAC 301.5 Length cm 300.5 299.5 298.5 297.5 1 2 3 4 Sample Number 5 6 7 MEAN UWL

LWL LAL:

(ii)

Mean length = 300 cm,

= 2 cm n = 9

Warning limits = x 1.96

n Warning limits = 300 1.307 (1.333 if z = 2 used)

300 1.96

2 9

298.697 to 301.307 (298.666 to 301.333) Action limits = x 3.09

n r = 300 3.09 2 9

Action limits = 300 2.06 297.94 to 302.06

17

CONTINUED ON THE NEXT PAGE

Model Answer for Question 6 continued

(iii) The lower warning limit is 298.697

z=

z=

298.697 299 = 0.45 2 9

using z = 0.4 probability = 1 0.655 = 0.345 using z = 0.5 probability = 1 0.692 = 0.308

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Question 7

(a) Explain the difference between a Type I and Type II error. (4 marks) The records of a company contain the following data on order value for the past two months:
September October

Mean value per order Standard deviation Sample size

640 40 60

625 35 55

(b) Has there been a significant decrease in the mean value per order between September and October? (7 marks) (c) Pool the data for September and October to give a best estimate of the mean value and the standard deviation per order. Using these data, estimate a 95% confidence interval for the mean value per order. (9 marks)
(Total 20 marks)

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Model Answer for Question 7

(a) A Type I error is the rejection of a true null hypothesis A Type II error is the acceptance of a false null hypothesis (b) Null hypothesis: there is no significance difference in the mean order value between September and October. Alternative hypothesis: there is significant difference in the mean order value between September and October. Critical z value = 1.64, 2 z=

x1 x2
s1 s + 2 n1 n1
2 2

z=

640 625 40 2 35 2 + 60 55

z=

15 26.67 + 22.27

15 48.94

15 6.996

z = 2.14 Conclusion: there is sufficient evidence to reject the null hypothesis at the 5%, the mean value of orders between September and October has decreased. There is insufficient evidence to reject the null hypothesis at the 1%, accept the alternative hypothesis the mean value of orders between September and October has decreased. (c) Joint mean = n1 x 1 + n2 x 2 = 60 x 640 + 55 x 625 72,775 = = 632.83 115 115
n1 sd1 + n 2 sd 2 n1 + n 2
2 2

Joint Standard Deviation =

60 x 40 2 + 55 x 35 2 60 + 55

163,375 = 1,420.65 = 37.69 115 z value for 95% significance level = 1.96 ci = x 1.96

ci = 632.83 1.96

37.69 115

= 632.83 6.89 = 625.94 to 639.72

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Question 8

(a) Explain what is meant by and give a business example of: (i) (ii) Independent events. Conditional probability. (4 marks) A company is planning the launch of a new product. It estimates that the probability of good market conditions is 60%. If market conditions are good the probability of a successful launch is 70%, if market conditions are poor the probability of a successful launch is 50%. (b) Find the probability that the launch is successful. (5 marks) (c) 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:
millions

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 (d) What is the expected profit from the new product launch?

80 18 50 25

(5 marks)
(Total 20 marks)

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Model Answer for Question 8

(a) (i)

An independent event is one where the occurrence of one event does not affect the probability of a second event eg a rise in costs and an increase in supply. The conditional probability of an event is the probability that one event occurs given another event has occurred eg given a customer buys a product today, what is the probability they saw last nights TV advertisement?

(ii)

(b) Probability good market conditions and successful = 0.6 x 0.7 = 0.42 Probability bad market conditions and successful = 0.4 x 0.5 = 0.20 0.62 (c) Probability launch unsuccessful = 1 0.62 = 0.38 Probability unsuccessful and bad market conditions = 0.5 x 0.4 = 0.20
Pr obability launch unsuccessf ul and bad market conditions 0.20 = Pr obability launch unsuccessf ul 0.38 = 0.526

(d) Market condition and outcome 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

Prob m m 0.42 x 80 33.60 0.18 x18 3.24 0.20 x 50 10.00 0.20 x25 5.00 35.36

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