LCCI International Qualifications

Business Statistics Level 3

Model Answers
Series 4 2008 (3009)

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Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

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) (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)

Helpful Hints

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.

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Consumer Credit £Bn 11.8 13.0 15.5 16.1 16.1 19.5 23.5 22.7 25.4 19.8 13.1

Expenditure on Furniture £Bn 8.7 9.0 9.3 9.8 10.9 11.1 12.0 12.8 13.2 13.1 13.3 (10 marks) (6 marks) (Total 20 marks)

(b) Calculate the correlation coefficient and comment on your answer. (c) Test whether the correlation coefficient differs significantly from zero.

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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 11.8 13.0 15.5 16.1 16.1 19.5 23.5 22.7 25.4 19.8 13.1 196.5 Σx Y 8.7 9.0 9.3 9.8 10.9 11.1 12.0 12.8 13.2 13.1 13.3 123.2 Σy

X2 139.24 169.00 240.25 259.21 259.21 380.25 552.25 515.29 645.16 392.04 171.61 3723.51 Σx2

Y2 75.69 81.00 86.49 96.04 118.81 123.21 144.00 163.84 174.24 171.61 176.89 1411.82 Σy2

XY 102.66 117.00 144.15 157.78 175.49 216.45 282.00 290.56 335.28 259.38 174.23 2254.98 Σxy

r=

(n∑ x

n∑ xy − (∑ x )(∑ y )
2 2

− (∑ x ) n∑ y 2 − (∑ y )

)(

2

)
2

r=

(11× 3723.51 − 196.5 )(11×1411.82 − 123.2 )
2

11 × 2254.98 − 196.5 × 123.2

r=

(2346.36)(351.78)

595.98

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

t=

r n−2 1− r
2

=

0.656 11 − 2 1 − 0.6562

= 2.61

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.

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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 Week 1 Week 2 Week 3 162 171 179 Tue 174 186 192 Wed 118 122 126 Thu 148 161 166 Fri 202 212 219 Sat 305 322 350 (6 marks)

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

(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)

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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 £000 total 1 162 174 118 148 202 305 171 186 122 161 212 322 179 192 126 166 219 350 (c) Monday Tuesday Wednesday Thursday -37.6 -19.1 -20.1 Total Var Avg Var -39.2 -19.6 -6.0 -8.1 -14.1 -7.0 -72.3 -77.0 -149.3 -74.6 -72.9 -36.5 29.2 14.6 240.0 120.0 -35.3 Friday 14.7 14.5 Saturday 116.3 123.7 1109 1118 1130 1134 1147 1157 1174 1182 1188 1192 1197 1204 1232 2227 2248 2264 2281 2304 2331 2356 2370 2380 2389 2401 2436 185.6 187.3 188.7 190.1 192.0 194.3 196.3 197.5 198.3 199.1 200.1 203.0 -37.6 14.7 116.3 -19.1 -6.0 -72.3 -35.3 14.5 123.7 -20.1 -8.1 -77.0 Moving total 2 Moving Differences average/Trend

Estimated Trend Growth = T12 – T1 = 203.0 – 185.6 = 17.4 = 1.58 n-1 12 – 1 11 Estimated Sales Seasonal Variation Monday Tuesday -19.6 -7.0 Estimated trend Estimated Sales

203.0 + 4 x 1.58 = 209.32 189.72 203.0 + 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 (b) Discrete and continuous variables (c) Type 1 and Type 2 errors (d) Random sampling and non-random sampling (4 marks) (4 marks) (6 marks) (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.

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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) (ii) less than 20 minutes 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)

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MODEL ANSWER TO QUESTION 4 (a) (i) Less than 20 minutes

z=

x − x 20 − 25 = = -1 sd 5

Probability = 1 – 0.841 = 0.159 (ii) Between 25 minutes and 32 minutes

z=

x − x 32 − 25 = = 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) Probability Less than 20 m 20<25 25<32 32+ 0.159 0.341 0.419 0.081 Cost 200 300 500 1000 Total =

Expected value £ 31.8 102.3 209.5 81.0 424.6

(c) Average waiting and repair x1+ 2 = x1 + x 2 = 25 + 10 = 35 Joint Standard deviation =
2 sd12 + sd 2 = 52 + 32 = 34 = 5.83

z=

x − x 45 − 35 = = 1.72 sd 5.83

Probability = 1.0 – 0.955 = 0.045 (0.043)

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

(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)

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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 Maintenance costs 2007 Differences Differences
2

25 36 22 28 34 27 -3 9 2 4 -5 25

29 33 -4 16

34 37 -3 9

65 60 5 25

48 42 6 36

12 18 -6 36

19 22 -3 9 -11 Σd 169 Σd2

d=

∑d
n

=

− 11 = -1.22 9
 ∑d   = 169 − (− 1.22 )2 = 4.16 −  n  9  
2

sd =
or

∑d
n

2

∑(d − d ) 2 155.56 = n 9

= 4.16

t=

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

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.

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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) (ii) Construct a control chart to monitor the mean length of these samples. The means of 6 samples were: 50.5mm 50.3mm 49.7mm 49.9mm 50.8mm 50.5mm (8 marks)

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)

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MODEL ANSWER TO QUESTION 6 (a) 50% or 0.5 (b) Warning limits

x ± 1.96

σ
n

50 ± 1.96

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

Action Limits

x ± 3.09

σ
n

50 ± 3.09 x 0.2 = 50 ± 0.63 = 50.63 to 49.37
51.00 50.80 50.60 50.40 50.20 50.00 49.80 49.60 49.40 49.20 49.00 1 2 3 4 5 6

UAL UWL Mean LWL LAL

Comment: the process is out of control for the 5th sample. It should be halted and corrective action taken. (c) Probability X< 49.6, z =

49.6 − 50.1 P(z <-2.45) = 0.993 0.245 50.4 − 50.1 P(z >1.22) = 0.115 0.245

Probability X> 50.4, z =

Therefore, probability the sample lies outside the limits is 0.007 + 0.115 = 0.122

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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 (£) 0 100 200 300 500 and less than and less than and less than and less than and less than 100 200 300 500 1000 Number of orders 110 170 95 100 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)

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MODEL ANSWER TO QUESTION 7 (a) Value of Orders £ 0 and up to 100 100 and up to 200 200 and up to 300 300 and up to 500 500 and up to 1000 Mid point 50 150 250 400 750 Number of orders 110 170 95 100 25 500 fx 5500 25500 23750 40000 18750 113500 fx2 275000 3825000 5937500 16000000 14062500 40100000 f x−x

(

)

2

3446190 1007930 50255 2992900 6838225 14335500
2

∑f
x=

∑ fx

∑ fx

2

∑ f (x − x )

∑ fx ∑f

=

113500 = £227 500

s=

∑ fx ∑f

2

 ∑ fx   = − ∑f   
2

40100000  113500  −  = £169 500  500 

2

or s =

∑ + (x − x )
n

2

=

14335500 = £169 500

(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 Pooled value of p =

125 + 99 224 = = 0.28 500 + 300 800 − 0.08

z=

0.25 − 0.33 1   1 0.28 × 0.72 +   500 300 

=

0.2016(0.00533)

= -2.44

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.

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

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

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MODEL ANSWER TO QUESTION 8 (a) Coefficient of variation =

σ

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

z=

x1 − x 2 s s + n1 n1
2 1 2 2

=

171 − 148 45 35 2 + 25 30
2

=

23 81 + 40.8

= 2.08

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. (d) Sample size n =

z2 ×σ 2 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

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