LCCI International Qualifications

Business Statistics
Level 3

Model Answers
Series 4 2008 (3009)

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Business Statistics Level 3
Series 4 2008

How to use this booklet

Model Answers have been developed by EDI to offer additional information and guidance to Centres,
teachers and candidates as they prepare for LCCI International Qualifications. The contents of this
booklet are divided into 3 elements:

(1) Questions – reproduced from the printed examination paper

(2) Model Answers – 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)

(3) Helpful Hints – where appropriate, additional guidance relating to individual

questions or to examination technique

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.

EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.

© EDI 2009

All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise
without prior written permission of the Publisher. The book may not be lent, resold, hired out or
otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is
published, without the prior consent of the Publisher.
QUESTION 1

(a) Explain what the correlation coefficient measures. (4 marks)

The annual amount of consumer credit taken out and expenditure on furniture in the UK between 1996
and 2006 is shown in the table below.

Consumer Expenditure
Year Credit on Furniture
£Bn £Bn
1996 11.8 8.7
1997 13.0 9.0
1998 15.5 9.3
1999 16.1 9.8
2000 16.1 10.9
2001 19.5 11.1
2002 23.5 12.0
2003 22.7 12.8
2004 25.4 13.2
2005 19.8 13.1
2006 13.1 13.3

(b) Calculate the correlation coefficient and comment on your answer. (10 marks)

(c) Test whether the correlation coefficient differs significantly from zero. (6 marks)

(Total 20 marks)

3009/4/08/MA Page 1 of 15
MODEL ANSWER TO QUESTION 1

(a) The correlation coefficient measures the degree of association between two or more variables. It
takes values between +1 and -1 signifying perfect association. A value of zero shows no
association. It does not indicate the direction of cause and effect.

(b)
X Y X2 Y2 XY
11.8 8.7 139.24 75.69 102.66
13.0 9.0 169.00 81.00 117.00
15.5 9.3 240.25 86.49 144.15
16.1 9.8 259.21 96.04 157.78
16.1 10.9 259.21 118.81 175.49
19.5 11.1 380.25 123.21 216.45
23.5 12.0 552.25 144.00 282.00
22.7 12.8 515.29 163.84 290.56
25.4 13.2 645.16 174.24 335.28
19.8 13.1 392.04 171.61 259.38
13.1 13.3 171.61 176.89 174.23
196.5 123.2 3723.51 1411.82 2254.98
Σx Σy Σx2 Σy2 Σxy

n∑ xy − (∑ x )(∑ y )
r=
(n∑ x 2
)(
− (∑ x ) n∑ y 2 − (∑ y )
2 2
)
11 × 2254.98 − 196.5 × 123.2
r=
(11× 3723.51 − 196.5 )(11×1411.82 − 123.2 )
2 2

595.98
r=
(2346.36)(351.78)

r = 0.656
This shows moderately high positive correlation.

(c) Null hypothesis: The correlation coefficient does not differ from zero.
Alternative hypothesis: The correlation coefficient does differ from zero.

Degrees of freedom = n – 2 = 11 – 2 = 9
Critical t value 2.26 / 3.25

r n−2 0.656 11 − 2
t= = = 2.61
1− r 2
1 − 0.6562

Conclusions: The calculated value of t is more than the critical value of t 0.05, therefore reject the null
hypothesis. There is evidence to show the correlation coefficient differs from zero. The calculated
value of t 0.01 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.

3009/4/08/MA Page 2 of 15
QUESTION 2

(a) Explain when the additive model should be used in preference to the multiplicative model when
calculating the seasonal elements in a time series.
(4 marks)

A shop opens six days a week Monday to Saturday. The daily sales for 3 weeks in £000 were
recorded as shown below.

Mon Tue Wed Thu Fri Sat

Week 1 162 174 118 148 202 305
Week 2 171 186 122 161 212 322
Week 3 179 192 126 166 219 350

(b) Using the method of moving averages, find the trend values. (6 marks)

(c) Using the additive model, find the average daily variations and hence forecast sales for Monday
and Tuesday of week 4. Comment on the likely accuracy of your answers.
(10 marks)

(Total 20 marks)

3009/4/08/MA Page 3 of 15
MODEL ANSWER TO QUESTION 2

(a) The additive model should be used in preference to the multiplicative model when the trend in the
data is linear and the variations do not increase as the trend values increase. (Sketch diagrams
to illustrate this are also acceptable)

(b)
Daily Sales Moving Moving Moving Differences
£000 total 1 total 2 average/Trend

162
174
118 1109
148 1118 2227 185.6 -37.6
202 1130 2248 187.3 14.7
305 1134 2264 188.7 116.3
171 1147 2281 190.1 -19.1
186 1157 2304 192.0 -6.0
122 1174 2331 194.3 -72.3
161 1182 2356 196.3 -35.3
212 1188 2370 197.5 14.5
322 1192 2380 198.3 123.7
179 1197 2389 199.1 -20.1
192 1204 2401 200.1 -8.1
126 1232 2436 203.0 -77.0
166
219
350

(c)
Monday Tuesday Wednesday Thursday Friday Saturday
-37.6 14.7 116.3
-19.1 -6.0 -72.3 -35.3 14.5 123.7
-20.1 -8.1 -77.0
Total Var -39.2 -14.1 -149.3 -72.9 29.2 240.0
Avg Var -19.6 -7.0 -74.6 -36.5 14.6 120.0

Estimated Trend Growth = T12 – T1 = 203.0 – 185.6 = 17.4 = 1.58

n-1 12 – 1 11

Estimated Sales

Seasonal Estimated trend Estimated

Variation Sales
Monday -19.6 203.0 + 4 x 1.58 = 209.32 189.72
Tuesday -7.0 203.0 + 5 x 1.58 = 210.9 203.9

Estimate is extrapolation and therefore there is some uncertainty about the results. However, the
distance into the future is not too great.

3009/4/08/MA Page 4 of 15
QUESTION 3

Explain the difference between the following pairs of terms, giving suitable diagrams or examples to
illustrate your answer.

(a) One and two tail tests of significance (4 marks)

(b) Discrete and continuous variables (4 marks)

(c) Type 1 and Type 2 errors (6 marks)

(d) Random sampling and non-random sampling (6 marks)

(Total 20 marks)

MODEL ANSWER TO QUESTION 3

(a) A one tail test is when the alternative hypothesis is stated in terms of the direction of the
difference, either greater than or less than, e.g. “the mean is greater than”.

A two tail test is when the alternative hypothesis is stated without direction to the change e.g.
“there is a difference”.

(b) A discrete variable is one which can only take whole values e.g. car production, number of
children in a family.

A continuous variable is one which can change by any fractional amount e.g. time, weight,
distance.

(c) A type 1 error is when the null hypothesis is rejected when it should be accepted.
The level of significance is the probability of a type 1 error occurring. A type 2 error is when the
null hypothesis is accepted when it should be rejected. Increasing the significance level from e.g.
0.05 to 0.01 will reduce the probability of making a type 1 error but will increase the risk of making
a type 2 error.

(d) With a random sampling technique each item has a known probability of being chosen e.g.
simple random sampling. This sampling technique usually involves the generation of random
numbers when selecting sample items.

A non-random technique is not based on probabilities but on some basis which is convenient for
the sampler e.g. quota requires the sampler to choose sample subjects with known
characteristics.

3009/4/08/MA Page 5 of 15
QUESTION 4

A company employs a team of mechanics to maintain its machines. The time taken for repairing a
machine follows a normal distribution with a mean time of 25 minutes and a standard deviation of 5
minutes.

(a) Calculate the probability that the time taken to repair a machine is:
(i) less than 20 minutes
(ii) between 20 minutes and 32 minutes.
(7 marks)

The costs to the company of a machine breakdown are:

£200 if the breakdown is less than 20 minutes

£300 if the breakdown is between 20 minutes and 25 minutes
£500 if the breakdown is between 25 minutes and 32 minutes
£1000 if the breakdown is over 32 minutes.

(b) Calculate the expected cost of a machine breakdown. (5 marks)

The maintenance team operates a mean call-out time of 10 minutes with standard deviation of 3
minutes. The call-out times are normally distributed.

(c) What is the probability that the combined call-out and repair time for a job exceeds 45 minutes?

(8 marks)

(Total 20 marks)

3009/4/08/MA Page 6 of 15
MODEL ANSWER TO QUESTION 4

(a) (i) Less than 20 minutes

x − x 20 − 25
z= = = -1
sd 5
Probability = 1 – 0.841 = 0.159

(ii) Between 25 minutes and 32 minutes

x − x 32 − 25
z= = = 1.4
sd 5
Probability 0.919 – 0.5 = 0.419
Between 20 minutes and 25 minutes = 0.841 – 0.5 = 0.341

Probability 20 minutes to 32 minutes = 0.419 + 0.341 = 0.760

(b)
Expected
Probability Cost
value £

Less than 20 m 0.159 200 31.8

20<25 0.341 300 102.3
25<32 0.419 500 209.5
32+ 0.081 1000 81.0
Total = 424.6

(c) Average waiting and repair x1+ 2 = x1 + x 2 = 25 + 10 = 35

Joint Standard deviation = sd12 + sd 22 = 52 + 32 = 34 = 5.83

x − x 45 − 35
z= = = 1.72
sd 5.83
Probability = 1.0 – 0.955 = 0.045 (0.043)

3009/4/08/MA Page 7 of 15
QUESTION 5

(a) Explain the circumstances in which a t test is used in preference to a z test. (4 marks)

A production line has a number of identical machines. A record of the maintenance costs of a random
sample of 9 machines in the years 2006 and 2007 are shown in the table below:

Machine A B C D E F G H I
Cost
£00 25 36 22 29 34 65 48 12 19
2006
Cost
£00 28 34 27 33 37 60 42 18 22
2007

(b) Test whether there is a significant difference in the maintenance costs between the two years.
(12 marks)

(c) What is meant by the 95% confidence interval for a sample proportion? (4 marks)

(Total 20 marks)

3009/4/08/MA Page 8 of 15
MODEL ANSWER TO QUESTION 5

(a) The t distribution will be used when the sample size is small (less than 30) and/or the population
standard deviation is unknown.

(b) Null hypothesis: The maintenance costs have not changed between the two years.
Alternative hypothesis: The maintenance costs have changed between the two years.

Degrees of Freedom = (n-1) = 9 – 1 = 8

Critical t value = 2.31/3/36

Maintenance costs 2006 25 36 22 29 34 65 48 12 19

Maintenance costs 2007 28 34 27 33 37 60 42 18 22
Differences -3 2 -5 -4 -3 5 6 -6 -3 -11 Σd
2
Differences 9 4 25 16 9 25 36 36 9 169 Σd2

d=
∑d =
− 11
= -1.22
n 9

∑d  ∑d 
2 2

sd = −  = 169 − (− 1.22 )2 = 4.16

n  n  9
 
∑(d − d ) 2 155.56
or = = 4.16
n 9

d −0 − 1.22 − 0 − 1.22
t= = =t = = -0.83
sd n − 1 4.16 9 − 1 1.47

Conclusion: The calculated value of t is less than the critical values of t therefore there is
insufficient evidence to reject the null hypothesis, the maintenance costs have not changed
between the two years.

(c) The 95% confidence interval for a proportion means that if samples of the same size are
taken the sample proportion will lie within the stated range 95 times of 100.

3009/4/08/MA Page 9 of 15
QUESTION 6

(a) A production process produces items that are normally distributed. What is the probability of a
randomly selected item from the production process lying above the process mean?
(2 marks)

When it is under control a process produces components whose length is normally distributed with
mean 50 mm and standard deviation 0.5 mm. Random samples of 6 components are selected at
intervals and the mean length of each sample is measured. 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 a mean
exceeding the limit is 0.001.

(b) (i) Construct a control chart to monitor the mean length of these samples. (8 marks)

(ii) The means of 6 samples were:

50.5mm 50.3mm 49.7mm 49.9mm 50.8mm 50.5mm

Plot these values on your control chart and comment.

(4 marks)

(c) If the process mean changed to 50.1 mm and the standard deviation remained at 0.5 mm,
calculate the probability that the mean of a randomly selected sample of 6 items would lie outside
the warning limits.
(6 marks)

(Total 20 marks)

3009/4/08/MA Page 10 of 15
MODEL ANSWER TO QUESTION 6

(a) 50% or 0.5

σ
(b) Warning limits x ± 1.96
n

0.5
50 ± 1.96 = 50 ± 1.96 x 0.2 = 50 ± 0.4 = 50.4 to 49.6
6

σ
Action Limits x ± 3.09
n

50 ± 3.09 x 0.2 = 50 ± 0.63 = 50.63 to 49.37

51.00

50.80

50.60
UAL
50.40
UWL
50.20

50.00 Mean
49.80

49.60 LWL
49.40 LAL
49.20

49.00
1 2 3 4 5 6

Comment: the process is out of control for the 5th sample. It should be halted and
corrective action taken.

49.6 − 50.1
(c) Probability X< 49.6, z = P(z <-2.45) = 0.993
0.245

50.4 − 50.1
Probability X> 50.4, z = P(z >1.22) = 0.115
0.245
Therefore, probability the sample lies outside the limits is 0.007 + 0.115 = 0.122

3009/4/08/MA Page 11 of 15
QUESTION 7

In 2007, the directors of a company decided to analyse the value of orders placed with it. A random
sample of 500 orders was selected and the following results were obtained:

Value of Orders (£) Number of

orders
0 and less than 100 110
100 and less than 200 170
200 and less than 300 95
300 and less than 500 100
500 and less than 1000 25

(a) Calculate the mean and standard deviation value of orders, giving your answer to the nearest
whole £.
(8 marks)

In 2000, from a random sample of 300 orders, 99 orders of £300 or more were placed.

(b) Test whether the proportion of orders placed for £300 or more has changed between 2000 and
2007.
(12 marks)

(Total 20 marks)

3009/4/08/MA Page 12 of 15
MODEL ANSWER TO QUESTION 7

(a)

Value of Orders £ Mid

point
Number
of orders
fx fx2
(
f x−x )
2

0 and up to 100 50 110 5500 275000 3446190

100 and up to 200 150 170 25500 3825000 1007930
200 and up to 300 250 95 23750 5937500 50255
300 and up to 500 400 100 40000 16000000 2992900
500 and up to 1000 750 25 18750 14062500 6838225
500 113500 40100000 14335500

∑f ∑ fx ∑ fx ∑ f (x − x )
2 2

x=
∑ fx =
113500
= £227
∑f 500

∑ fx  ∑ fx 
2 2 2
40100000  113500 
s= −  = −  = £169
∑f ∑f 
  500  500 

∑ + (x − x )
2
14335500
or s = = = £169
n 500

(b) Proportion between £300 and £1000 = 125/500 = 0.25

Null hypothesis: There is no difference in the proportion of orders over £300.

Alternative hypothesis: There is a difference in the proportion of orders over £300.

Critical z value = ±1.96/±2.58

125 + 99 224
Pooled value of p = = = 0.28
500 + 300 800

0.25 − 0.33 − 0.08

z= = = -2.44
 1 1  0.2016(0.00533)
0.28 × 0.72 + 
 500 300 

Conclusion: The calculated value of z is greater than the critical value of z at the 5%
significance level there is evidence to reject the null hypothesis the proportion of orders
over £300 has changed.

The calculated value of z is less than the critical value of z at the 1% significance level there is
insufficient evidence to reject the null hypothesis. The proportion of orders has not changed.

3009/4/08/MA Page 13 of 15
QUESTION 8

The records of a company for two shops A and B contain the following sample data on sales per
member of staff for the past year:

Shop A Shop B
Mean sales £000 171 148
Median sales £000 141 145
Standard deviation £000 45 35
Sample size 25 30

(a) Calculate the coefficient of variation for both shops and comment upon your answers.
(4 marks)

(b) Explain why the mean value of sales is larger than the median value in shop A.
(4 marks)

(c) Test whether the mean sales figure is significantly higher in shop A than in shop B.
(8 marks)

When the sample data of the two shops are combined the mean sales per member of staff for the
company as a whole is found to be £158.45 and the standard deviation is £39.86.

(d) Calculate the sample size necessary to be 95% confident that the sample mean sales per
member of staff for the two shops is within £5 of the population mean.
(4 marks)

(Total 20 marks)

3009/4/08/MA Page 14 of 15
MODEL ANSWER TO QUESTION 8
σ
(a) Coefficient of variation =
x
Shop A = 45/171 = 0.263 or 26.3%
Shop B = 35/148 = 0.236 or 23.6%

The sales in shop A are relatively more variable than in shop B.

(b) The mean value will be bigger than the median for a distribution when the distribution is
positively skewed. That is there are some values considerably greater than the general
run of values.

(c) Null hypothesis: There is no difference in the mean value of sales per member of staff
between the two shops.
Alternative hypothesis: The mean value of sales per member of staff is higher in shop A
than shop B.

Critical z value 1.64/2.33

x1 − x 2 171 − 148 23
z= = = = 2.08
s2
s 2
45 2
35 2 81 + 40.8
1
+ 2
+
n1 n1 25 30

Conclusion: The calculated value of z is greater than the critical value of z at the
5% significance level there is evidence to reject the null hypothesis. The mean value
of sales per member of staff is higher in shop A than shop B.

The calculated value of z is less than the critical value of z at the 1% significance level.
There is insufficient evidence to reject the null hypothesis. The mean value of sales
per member of staff is no higher in shop A than shop B.

z2 ×σ 2
(d) Sample size n =
d2
95% confidence z = ±1.96

1.96 2 × 39.86 2
n= = 244.14 (Accept 244 or 245) (254 if z =2 used)
52

3009/4/08/MA Page 15 of 15 © Education Development International plc 2009

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