Business Statistics/Series-3-2010(Code3009) | Type I And Type Ii Errors | Standard Deviation

LCCI International Qualifications

Business Statistics Level 3

Model Answers
Series 3 2010 (3009)

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Business Statistics Level 3
Series 3 2010

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.

© Education Development International plc 2010 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.

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QUESTION 1 A local authority conducts a random sample of the number of planning applications examined per day by its planning officers over a period of five years. The data are shown below. Number of days 103 68 38 22 15

Number of planning applications examined 40 and under 80 80 and under 120 120 and under 160 160 and under 200 200 and under 300 (a)

Calculate the mean and standard deviation for the number of planning applications examined per day. (9 marks) Calculate a 95% confidence interval estimate for the mean daily number of planning applications examined. (5 marks)

(b)

The government has set a standard of 120 planning applications to be examined per day. (c) Test whether the local authority reaches the government standard. (6 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 1 (a) Number of planning Number of applications days examined 40 and under 80 103 80 and under 120 120 and under 160 160 and under 200 200 and under 300 68 38 22 15 246 f

x 59.5 99.5 139.5 179.5 249.5

fx 6128.5 6766.0 5301.0 3949.0 ..3742.5 25887.0 fx

fx

2

f

x x

2

364645.8 673217.0 739489.5 708845.5 ..933753.8 3419951.6

215114.5 2209.3 44706.6 121450.8 312337.4 695818.6 f

fx

2

x x

2

Arithmetic mean =

x

fx f
= 105.2 applications per day

= 25887 246

Standard deviation =

s

fx 2 f

fx f

2

s
or

3419951.6 246

25887 246
2

2

=

13902.2 11073.7 =

2828.5

f x x f
= = 53.18 per day

695818.6 246

f x x f f x x f f x x f f x x f

2

2

2

2

==

1743409121 . 165
3009/3/10/MA Page 3 of 20

QUESTION 1 CONTINUED (b) 95% confidence interval z = 1.96

ci

x 1.96

n

105.2 1.96

53.18 246

= 105.2 (c)

6.65= 98.58 to 111.88

Null Hypothesis: The local authority reaches the government standard. Alternative hypothesis: The local authority does not reach the government standard.

One tail test z = 1.64

z

x n

=

105.2 120 53.18 246

= -14.27 = -4.21 3.39 Conclusion: There is evidence to reject the null hypothesis; the local authority has not reached the government standard.

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QUESTION 2 A random sample of 12 households records the value of their house and the annual expenditure on repairs to the house. Value of house (£000) 215 323 455 329 235 425 327 385 237 155 196 176 (a) Annual expenditure on repairs (£) 1850 2550 3150 1850 1750 1700 2600 3300 2750 1300 1600 1750

Calculate the least squares regression line of expenditure on repairs based on the value of a house. (10 marks)

(b)

Using the regression equation found in (a) estimate the annual expenditure on repairs to a house valued at £250,000. (2 marks) The value of the coefficient of determination is 0.403 or 40.3% (c) Explain what the coefficient of determination measures and comment on the accuracy of your answer in (b) above. (4 marks) What factors, other than the value of the house, may affect the expenditure on repairs? (4 marks) (Total 20 marks)

(d)

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MODEL ANSWER TO QUESTION 2 (a) Value of Annual house £000 expenditure on repairs £ 215 1850 323 455 329 235 425 327 385 237 155 196 176 3458 x 2550 3150 1850 1750 1700 2600 3300 2750 1300 1600 1750 26150 y

x 46225 104329 207025 108241 55225 180625 106929 148225 56169 24025 38416 30976 1106410 x
2

2

xy 397750 823650 1433250 608650 411250 722500 850200 1270500 651750 201500 313600 308000 7992600 xy

b

n n

xy x2

x x
2

y

b

12 7992600 3458 26150 12 1106410 34582

95911200 90426700 13276920 11957764

b= 5484500 = 4.16 1319156

a

y n

b

x n

26150 3458 4.16 12 12

a = 981.1 y = 981.1 + 4.16x (b) Estimated costs of repair and maintenance = 981.1 + 4.16 x 250 = 981.1 + 1040. = 2021.1 (£) (c) The coefficient of determination measures the change in repairs expenditure due to the change in house value. Therefore, 40.3% of the change in repair expenditure is due to the change in house value. The estimated repairs expenditure is not very accurate. Age of house, size of family, attitude to house repair, size and value may not be comparable.

(d)

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QUESTION 3 (a) Explain the circumstances in which a paired t test would be used in preference to a two sample mean test for small independent samples. (4 marks)

A consumer protection magazine wishes to compare the cost of repairs between two companies. They used a sample of 9 businesses to request estimates for the cost of a repair by both companies.

Business A B C D E F G H I (b) (c)

Company X Estimated cost of repairs £ 2400 2600 5696 7936 4000 7040 3930 6000 3576

Company Y Estimated cost of repairs £ 2560 2760 5952 7933 4200 7245 3830 5964 3620

Test whether the estimated cost of repairs differs between the two companies. (12 marks) What practical reasons may the two companies have for giving different estimates of repair costs? (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 3 (a) (b) The paired t test is used when a single sample is subject to two “treatments” compared with two samples being compared. Null hypothesis: The estimated cost of repair does not differ between the two companies. Alternative hypothesis: The estimated cost of repair does differ between the two companies. Degrees of Freedom = n - 1 = 9 - 1 = 8 Critical t value 0.05 = 2.31: 0.01 = 3.36 Company X Estimated cost of repairs £ 2400 2600 5696 7936 4000 7040 3930 6000 3576 Company Y Estimated cost of repairs £ 2560 2760 5952 7933 4200 7245 3830 5964 3620

Difference d -160 -160 -256 3 -200 -205 100 36 ..44 -886 Σd

(d

d)

(d

d )2

d

2

-61.556 -61.556 -157.556 101.444 -101.556 -106.56 198.444 134.444 54.444

3789.1 3789.1 24823.8 10291.0 10313.5 11354.1 39380.2 18075.3 2964.2 124780

25600 25600 65536 9 40000 42025 10000 1296 …1936 212002 Σd
2

(d

d)

2

d

d n

=

-886 9

= -98.44

sd = or

d2 n

d n

2

=

212002 9

886 9

2

= 117.7

sd

d d n

2

=

124780 = 117.7 9

t

d sd

98.44 0 = = -2.36 117.7 n 1 9 1

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QUESTION 3 CONTINUED Conclusion: The calculated value of t is greater than the critical value of t at the 0.05 level; reject the null hypothesis accept the alternative hypothesis, the estimated cost of repair does differ between the two companies. The results is not significant at the 0.01 level accept the null hypothesis, the estimates do not differ between the two companies. (c) The companies may have different cost structures due to eg labour costs, error in calculating costs, use of manufacturer’s or generic parts, quality of the work carried out.

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QUESTION 4 A random sample of workers in the Marketing department of a large company were interviewed and the degree of job satisfaction and their job status were recorded.

Job Satisfaction High Job Status Management Skilled Unskilled 105 69 56 Medium 30 32 38 Low 165 89 96

(a) (b)

Test whether there is an association between job satisfaction and job status. (12 marks) National data show that marketing workers express the following levels of job satisfaction. Job Satisfaction High 30% Medium 16% Low 54%

By combining the different job status of marketing workers’ test whether the views on job satisfaction of workers in the Marketing department differ from the national situation. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 4 (a) Null hypothesis: there is no association between job satisfaction and job status. Alternative hypothesis: there is association between job satisfaction and job status.

Degrees of freedom (r - 1)(c - 1) = (3 - 1)(3 - 1) = 2 x 2 = 4 2 0.05 = 9.49; 0.01 = 13.28 Observed frequencies Job Status High 105 69 56 Job Satisfaction Medium Low 30 165 32 89 38 96

Expected frequencies 101.47 64.26 64.26 Contributions to
2

44.12 27.94 27.94

154.41 97.79 97.79

0.1228 0.3489 1.0629

4.5176 0.5896 3.6212 chi sq=

0.7261 0.7908 0.0329 11.8127

Conclusion: the calculated Chi-squared is greater than the critical value of Chi-squared at the 0.05 but not at the 0.01 significance level, there is some association between job satisfaction and job status. (b) Null hypothesis: marketing workers have the same levels of job satisfaction as marketing executives nationally. Alternative hypothesis: marketing workers do not have the same levels of job satisfaction as marketing executives nationally. Degrees of freedom (3 - 1) = 2 Critical value of
2

0.05 = 5.99 0.01 = 9.21 High Medium 100 108.8 0.712
2

Low 350 367.2 0.806 Chi squared = 4.8313
2

Observed Expected

230 204 3.314

Conclusion: the calculated value of is less than the critical value of there is insufficient evidence to reject the null hypothesis that marketing executives have the same level of job satisfaction as marketing executives.

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QUESTION 5 A, B and C are candidates for a role as design manager. The Managing Director recommends a candidate and the company board must ratify the decision. The probability the Managing Director recommends A is 55%, B 25% and C 20%. The probability that the board ratifies A is 60%, B 30% and C 10% and is independent of the recommendation made by the Managing Director. (a) Find the probability that (i) (ii) (iii) B is a successful candidate No candidate is successful Given that one candidate is successful, it is candidate B. (10 marks) A container ship terminal can unload standard containers at the rate of 2000 per 8 hour day with a standard deviation of 200 containers. Assume the rate of unloading is normally distributed. (b) (c) Find the probability that more than 2360 containers are unloaded in a day. (3 marks) A ship carries 6500 containers what is the probability it will be unloaded in less than 3 days. (7 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 5 (a) (i) B successful = 0.25 x 0.3 = 0.075 (ii) No candidate is successful A = 0.55 x 0.4 = 0.22 B = 0.25 x 0.7 = 0.175 C = 0.20 x 0.9 = 0.18.. 0.575 (iii) Probability a candidate successful = 1 - 0.575 = 0.425 Probability B successful Probability success (b) = 0.075 0.425 = 0.176

More than 2360 in a day

z

x sd

z

2000 2360 200

= 360/200 = 1.8

Table probability = 0.964 required probability = 1 - 0.964 = 0.036 (c) A joint normal distribution approach is needed.

Joint mean x1

x2

x3 = 2000 + 2000 + 2000 = 6000
sd12
2 sd 2

Joint standard deviation =

sd32 =

2002

2002

2002 =346

z

x sd

z

6500 6000 346

= 500/346 = 1.4 (1.445)

Table probability = 0.919 required probability = 1- 0.919 = 0.081 (0.075)

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QUESTION 6 (a) Explain why, when the sample size increases, the sample proportions cluster more closely about the population proportion. (4 marks)

A company is concerned about the difference in sick leave between the US factories and the UK factories. A random sample of 70 US staff showed 11 took more than 10 days sick leave absent, whilst a sample of 90 UK staff showed 18 took more than 10 days sick leave. (b) (i) Test whether the proportion of staff taking more than 10 days sick leave is higher in the UK than the US (12 marks) Explain what is meant by a Type 1 error and whether a Type 1 error may have been committed in your conclusions in part (b) (i). (4 marks) (Total 20 marks)

(ii)

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MODEL ANSWER TO QUESTION 6 (a) When samples of a given size are taken, the distribution of the sample proportions is referred to as the sampling distribution of the proportion .

The formula is se = will decrease. (b)

p (1 p as n increases for any given proportion the value of se n

(i) Null hypothesis: the proportion of staff with more than 10 days sick leave in the US does not differ from the proportion of staff with more than 10 days sick leave in the UK. Alternative hypothesis: the proportion of staff with more than 10 days sick leave in the US is less than the proportion of staff with more than 10 days sick leave in the UK.

Critical z value for 0.05 significance level = -1.64 p1 = 11 = 0.1571; p2 = 18 = 0.20 70 90

p

n1 p1 n1

n2 p 2 n2

= 0.1571 x 70 + 0.20 x 90 = 11 + 18 = 0.181 70 + 90 160

z

p1 p1 p

p2 1 n1 1 n2

0.1571 0.20 0.181 0.819 1 70 1 90

= -0.0429 = - 0.698 0.0614 Conclusions: the calculated z value is less than the critical value of z. There is insufficient evidence to reject the null hypothesis. The proportion of staff with more than 10 days sick leave in the US does not differ from the proportion of staff with more than 10 days sick leave in the UK. (ii) A type 1 error is when a true null hypothesis is rejected when it should be accepted. As the null hypothesis was accepted a type 1 error cannot have been made.

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QUESTION 7 An investigation was carried out into the number of errors per shift made in dispatching internet orders from warehouses in London and in Hong Kong. Random samples were taken in both London and Hong Kong. A summary of the results is given below.

London Arithmetic mean Standard Deviation Median Sample size 225 31 218 55

Hong Kong 211 23 217 47

(a)

Calculate a measure of skewness for each of the cities. (4 marks) (b) Write a brief memo to the Sales Manager of the company highlighting the main features in the error statistics between the two cities. (8 marks) Test whether the average number of errors in Hong Kong is less than the average number of errors in London. (8 marks) (Total 20 marks)

(c)

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MODEL ANSWER TO QUESTION 7 (a) The measure of skew = 3(mean – median) Standard deviation

London = 3(225 – 218) Hong Kong= 3(211 – 217) 31 23 = 0.677 (b) = -0.783

Memo layout: Title, Date, From, To and Subject

A range of content is possible. The following is suggested The arithmetic mean and standard deviation are both larger for London than Hong Kong. Coefficient of variations 0.138 and -0.109 London is more variable than Hong Kong. The London Median is greater than the Hong Kong Median. The London Mean is greater than the Hong Kong Mean. The London mean must have more extreme high values whilst Hong Kong must have more extreme low values. The Hong Kong data is negatively skewed and London data is positively skewed but to approximately the same degree. (c) Null hypothesis: there is no difference in the number of errors made in dispatching internet orders from warehouses in London and in Hong Kong. Alternative hypothesis: there is a greater number of errors made in dispatching internet orders from warehouses in London than in Hong Kong.

Critical value of z for 0.05 significance level = 1.64/2.33

z

x1 s n1
2 1

x2 s n1
2 2

=

225 211 312 55 232 47

z

14 14 = = 2.62 5.23 17.47 11.26

Conclusions: The calculated value of z is more than the critical value of z. There is evidence to reject the null hypothesis. There is a greater number of errors made in dispatching internet orders from warehouses in London than in Hong Kong.

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QUESTION 8 (a) Explain the impact of a business setting its quality control limits too wide. (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 means exceeding the limit is 0.001. The average weight of pre-cut tuna is set at 175 grams with a standard deviation of 5 grams. 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 (7 marks) 7 samples taken from the production line had the following mean weight (grams): 178.6 180.8 170.5 168.4 172.5 175.8 175.2

Weight per piece (grams)

Plot these data on your control chart and comment appropriately (5 marks) (iii) If the sample mean had been wrongly set at 177 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 upper action limit? (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 8 (a) By setting the quality control limits too wide the number of samples rejected will decrease and costs of resetting the process will be reduced and form a lower level of rejected items. The business may gain a reputation for poor quality which may damage its potential sales.

(b) (i) Warning limits

x 1.96

n

175 1.96

5 = 175 ± 3.26 = 171.7 to 178.3 9
(171.67 to 178.33 for z =2)

Action limits

x 3.09

n

175 3.09

5 = 175 ± 5.15 = 169.85 to 180.15 9
(170 to 180 for z = 3)

(ii)
Quality Control Chart

180

Weight per piece grams

178 176

174
172 170 168 1 2 3 4 Sample number 5 6 7

Comment: Samples 2 and 4 lie outside the action limits and the process is unstable. It needs to be stopped and adjusted. (iii)

z

x n

z

180.15 177 5 9

= 3.15 = 1.9 table proportion = 0.971 therefore answer = 0.029 1.67

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© Education Development International plc 2010

LEVEL 3

3009/3/10/MA

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