Converting to a Standard Normal Distribution

Think of me as the measure

of the distance from the
mean, measured in
standard deviations

Using Excel to Compute

Standard Normal Probabilities

Excel has two functions for computing probabilities

and z values for a standard normal distribution:
NORM S DIST is used to compute the cumulative
NORMSDIST
probability given a z value.
NORMSINV
NORM S INV is used to compute the z value
given a cumulative probability.
(The S in the function names reminds
us that they relate to the standard
normal probability distribution.)

Using Excel to Compute

Standard Normal Probabilities

Formula Worksheet
1
2
3
4
5
6
7
8
9

A
B
Probabilities: Standard Normal Distribution
P (z < 1.00)
P (0.00 < z < 1.00)
P (0.00 < z < 1.25)
P (-1.00 < z < 1.00)
P (z > 1.58)
P (z < -0.50)

=NORMSDIST(1)
=NORMSDIST(1)-NORMSDIST(0)
=NORMSDIST(1.25)-NORMSDIST(0)
=NORMSDIST(1)-NORMSDIST(-1)
=1-NORMSDIST(1.58)
=NORMSDIST(-0.5)

Using Excel to Compute

Standard Normal Probabilities

Value Worksheet
1
2
3
4
5
6
7
8
9

A
B
Probabilities: Standard Normal Distribution
P (z < 1.00)
P (0.00 < z < 1.00)
P (0.00 < z < 1.25)
P (-1.00 < z < 1.00)
P (z > 1.58)
P (z < -0.50)

0.8413
0.3413
0.3944
0.6827
0.0571
0.3085

Using Excel to Compute

Standard Normal Probabilities

Formula Worksheet
1
2
3
4
5
6

A
B
Finding z Values, Given Probabilities
z value with .10 in upper tail
z value with .025 in upper tail
z value with .025 in lower tail

=NORMSINV(0.9)
=NORMSINV(0.975)
=NORMSINV(0.025)

Using Excel to Compute

Standard Normal Probabilities

Value Worksheet
1
2
3
4
5
6

A
B
Finding z Values, Given Probabilities
z value with .10 in upper tail
z value with .025 in upper tail
z value with .025 in lower tail

1.28
1.96
-1.96

Example: Pep Zone

Standard Normal Probability Distribution
Pep Zone sells auto parts and supplies
including a popular multi-grade motor
oil. When the stock of this oil drops to
20 gallons, a replenishment order is
placed.

Pep
Zone
5w-20

Motor Oil

Example: Pep Zone

Pep
Zone
5w-20
Motor Oil

Standard Normal Probability Distribution

The store manager is concerned that sales are
being lost due to stockouts while waiting for an
order. It has been determined that demand during
replenishment lead time is normally distributed with
a mean of 15 gallons and a standard deviation of 6
gallons.
The manager would like to know the probability
of a stockout, P(x > 20).

Solving for Stockout Probability

Pep
Zone
5w-20
Motor Oil

Step 1: Convert x to the standard normal distribution

20 15

.83
6

Thus 20 gallons sold during the

replenishment lead time would be
.83 standard deviations above the
average of 15.

Solving for Stockout Probability:

Step 2

Now we need to find the area under

the curve to the left of z = .83. This
will give us the probability that
x 20 gallons.

Pep
Zone
5w-20
Motor Oil

Example: Pep Zone

Pep
Zone
5w-20
Motor Oil

Cumulative Probability Table for

the Standard Normal Distribution

.00

.01

.02

.03

.04

.05

.06

.07

.08

.09

.5

.6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224

.6

.7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549

.7

.7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852

.8

.7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133

.9

.8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389

P(z <
.83)

Example: Pep Zone

Pep
Zone

Solving for the Stockout Probability

5w-20
Motor Oil

Step 3: Compute the area under the standard normal

curve to the right of z = .83.
P(z > .83) = 1 P(z < .83)
= 1- .7967
= .2033
Probability
of a stockout

P(x > 20)

Example: Pep Zone

Pep
Zone

5w-20
Motor Oil

Solving for the Stockout Probability

Area = 1 - .7967

Area = .7967

= .2033

.83

Example: Pep Zone

Pep
Zone
5w-20
Motor Oil

If the manager of Pep Zone

wants the probability of a
stockout to be no more than
.05, what should the reorder
point be?

Example: Pep Zone

Pep
Zone
5w-20
Motor Oil

Solving for the Reorder Point

Area = .9500
Area = .0500

z.05

Example: Pep Zone

Pep
Zone

5w-20
Motor Oil

Solving for the Reorder Point

Step 1: Find the z-value that cuts off an area of .05

in the right tail of the standard normal
distribution.
z

.00

.01

.02

.03

.04

.05

.06

.07

.08

.09

1.5 .9332 .9345 .9357 .9370 .9382 .9394 .9406 .9418 .9429 .9441
1.6 .9452 .9463 .9474 .9484 .9495 .9505 .9515 .9525 .9535 .9545
1.7 .9554 .9564 .9573 .9582 .9591 .9599 .9608 .9616 .9625 .9633
1.8 .9641 .9649 .9656 .9664 .9671 .9678 .9686 .9693 .9699 .9706
1.9 .9713 .9719 .9726 .9732
.9750
.9756 .9761 .9767
We.9738
look.9744
up the
complement
.

. of the
. tail .area (1
. - .05. = .95).

Solving for the Reorder Point

Step 2: Convert z.05 to the corresponding value of x :

x z.05 15 1.645 (6) 24 .87

Pep
Zone
5w-20
Motor Oil

Solving for the Reorder Point

Pep
Zone
5w-20
Motor Oil

So if we raising our reorder point

from 20 to 25 gallons, we reduce
the probability of a stockout from
about .20 to less than .05

Using Excel to Compute

Normal Probabilities

Excel has two functions for computing cumulative

probabilities and x values for any normal
distribution:
NORMDIST is used to compute the cumulative
probability given an x value.

NORMINV is used to compute the x value given

a cumulative probability.

Using Excel to Compute

Normal Probabilities
Formula Worksheet

1
2
3
4
5
6
7
8

Pep
Zone
5w-20
Motor Oil

A
B
Probabilities: Normal Distribution
P (x > 20) =1-NORMDIST(20,15,6,TRUE)
Finding x Values, Given Probabilities
x value with .05 in upper tail =NORMINV(0.95,15,6)

Using Excel to Compute

Normal Probabilities

5w-20
Motor Oil

Value Worksheet

1
2
3
4
5
6
7
8

Pep
Zone

A
B
Probabilities: Normal Distribution
P (x > 20) 0.2023
Finding x Values, Given Probabilities
x value with .05 in upper tail 24.87

Note: P(x > 20) = .2023 here using Excel, while our
previous manual approach using the z table yielded
.2033 due to our rounding of the z value.

Exercise 18, p. 261

The average time a subscriber reads the Wall Street Journal
is 49 minutes. Assume the standard deviation is 16
minutes and that reading times are normally distributed.
a) What is the probability a subscriber will spend at least one
hour reading the Journal?
b) What is the probability a reader will spend no more than 30
minutes reading the Journal?
c) For the 10 percent who spend the most time reading the
Journal, how much time do they spend?

Exercise 18, p. 261

a) Convert x to the standard normal distribution:

60 49
.6875

16
Thus one who read 560 minutes would be .69 from
the mean. Now find P(z .6875). P(z .69)= .7549.
Thus P(x > 60 minutes) = 1 - .7549 = .2541.
z

b) Convert x to the standard normal distribution

30 49
1.19
16

P(x 30 minutes)
P( z 1.19) 1 P( z 1.19)
1 .8830 .117
Red-shaded
area is equal to
blue shaded
area

Thus:
P(x < 30 minutes) = .117

-1.19

1.19

Exercise 18, p. 261

(c)

x z.10
49 1.285(16) 70 minutes or more