LCCI International Qualifications

Business Statistics Level 3

Model Answers
Series 2 2011 (3009)

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Business Statistics Level 3

Series 2 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 2011 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

The Marketing Manager of an internet trading company has been investigating a possible link between the different parts of the world and customer expenditure. A random sample of 1250 customers showed the following distribution. World Region Europe Expenditure Under 200 200 and under 750 750 and over (a) 60 120 70 Asia 90 260 50 North America 115 280 105 Rest of the World 35 40 25

Test whether there is a significant association between different parts of the world and customer expenditure. (12 marks)

Before trading on the internet, the company operated a mail order business, and the percentage distribution of customer expenditure was as follows: Europe 19% Asia 33% North America 40% Rest of the World 8%

(b)

Has the distribution of customer expenditure changed since the company changed trading from mail order to the internet? (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 1 NH/AH 1

(a)

Null hypothesis: There is no association between the different parts of the world and customer expenditure. Alternative hypothesis: There is association between the different parts of the world and customer expenditure.

Degrees of freedom = (4-1) (3-1) = 6 Critical Chi-squared =12.59/16.81 D/f

2

1 cao Chi 1

expected freq

60 140 50 0.00 2.86

96 224 80 0.38 5.79

120 280 100 0.21 0.00 0.25

24 56 20 5.04 4.57 1.25

1m 2 cao cao

contribution to chi2 squared

1m 2cao

8.00 11.25 2 = 39.59 chi-squared ( )

1 cao

Conclusions: Reject the null hypothesis at the 1% significance level. There is strong evidence of association between the different parts of the world and customer expenditure.

2 ft

(b)

Null hypothesis: The distribution of customer expenditure has not changed. Alternative hypothesis: The distribution of customer expenditure has changed.
2

1 NH/AH 1cao 1cao

Degrees of freedom = 4-1= 3 Critical chi-squared =7.81/11.34 Observed 250 400 500 100 237.5 412.5 500 100 Expected 2 Contribution to 2 0.658 0.379 000.0 0.000 chi-squared =

1 cao 1m + 1 1.037 2 ft
2

Conclusion: Do not reject the null hypothesis. The distribution of customer expenditure has not changed.

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QUESTION 2

(a)

Explain, and give a business example of, what is meant in probability by: (i) (ii) mutually exclusive events dependent events. (8 marks)

An industrial chemical company has three new products (A, B and C) in development. It estimates the probability of successful development of the products as 0.5, 0.6 and 0.7 respectively.

(b)

Find the probability that: (i) (ii) (iii) all three products are successful no product is successful one product is successful. (8 marks)

(c)

Given exactly one product is successful what is the probability it is product B? (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 2

(a)

(i)

Mutually exclusive events are events where the occurrence of one event prevents the occurrence of another event. Example, a product launch being both successful and unsuccessful. Dependent events are events where the outcome of one event is related to the outcome of another event(s). Example, success of a product launch is dependent on market conditions.

2x2

(ii)

2x2

(b)

Find the probability that: (i) (ii) all are successfully developed 0.5 x 0.6 x 0.7 = 0.21 no product is successful 0.5 x 0.4 x 0.3 = 0.06 1m 1cao 1m 1cao

(iii)

one product is successful

0.5 x 0.4 x 0.3 + 0.5 x 0.6 x 0.3 + 0.5 x 0.4 x 0.7 0.06 + 0.09 + 0.14 = 0.29

1m 2 cao 1cao

(c)

Probability B successfully developed = 0.09 = 0.31 Probability one successful 0.29

1m 2cao 1cao

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QUESTION 3

(a)

Explain what the correlation coefficient measures. (4 marks)

The table below shows the length of service for a random sample of 10 employees, and the value of their weekly output. Employee Service (years) Value of weekly output 000 a b c d e f g h i j (b) 5 7 5 8 10 7 14 9 5 4 35.3 46.3 34.9 35.2 45.9 35.2 46.1 37.9 35.8 36.9

Calculate the product-moment correlation coefficient between length of service and the value of weekly output and comment on your answer. (10 marks)

(c)

Test if the correlation coefficient differs significantly from zero. (6 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 3 2x2 (a) The correlation coefficient measures the degree of linear association between two, or more, variables. It can vary between perfect association r = +/-1 to 0 no association.

(b) 74 X 389.5 Y 630 X

2

15397.55 Y
2

2975.2 XY

5 x 1 cao 1m 1ft

r=

(10 630 74 )(10 15397.55 389.5 )

2 2

10 2975.2 74 389.5

r=

(824)(2265.25)

929

1 for 2 correct values 1cao 1 ft

r = 0.68

Comment: Some positive correlation. (c) Null hypothesis: The correlation coefficient does not differ from zero. Alternative hypothesis: The correlation coefficient does differ from zero. Critical t value 2.306/3.355 1cao 1cao

Degrees of freedom = n-2 = 10 2 = 8

t=

r n2 1 r
2

0.68 10 2
=

1 0.682

= 4.0

1m 1cao 2ft

Conclusions: Reject the null hypothesis. The correlation coefficient does differ from zero.

(Total 20 marks)

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QUESTION 4

In 2010 a random sample of 360 small businesses revealed the following distribution for annual sales.

Sales 000 Over 40 and up to 60 Over 60 and up to 80 Over 80 and up to 100 Over 100 and up to 140 Over 140 and up to 200

Number of businesses 65 77 86 74 58

(a)

Estimate the mean and the standard deviation of sales per business. (8 marks) In the previous year mean sales was 93,650.

(b)

Test whether there has been a significant increase in the average sales for small businesses. (7 marks) Calculate a 95% confidence interval for the mean sales in 2010 (5 marks) (Total 20 marks)

(c)

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MODEL ANSWER TO QUESTION 4 Number of businesses f 65 77 86 74 58 360

Annual Sales 000 Over 40 and up to 60 Over 60 and up to 80 Over 80 and up to 100 Over 100 and up to 140 Over 140 and up to 200

Mid point (x) 50 70 90 120 170

fx 3250 5390 7740 8880 9860 35120

fx

(x x )

mid pt 1 cao

162500 377300 696600 1065600 1676200 3978200

147000 58466.8 4909.43 37277.7 304395 552049

fx 1m
f (x x )
1m

fx

or
2

f fx
x=

fx

f (x x )

fx f
fx f

1m 1 cao Lose 1 for no 000

35120 = 360 = 97.56 (000)

1m 1ft 1cao
2

s=

fx f

3978200 35120 360 360 = 39.16 (000)

s=
or

(x x )
n

552049 360 = 39.16 (000)

1 cao

(b)

Null Hypothesis: There has not been an increase in the average sales compared with the previous year. Alternative hypothesis: There has been an increase in the average sales compared with the previous year.

Critical Z value 1.64/2.33

1 cao

z=

97.56 93.65 39.16 360

1m 1 ft 1cao

z = 1.89

Conclusions: There is evidence to suggest that the sales have increase at the 0.05 but not at the 1% significance level. There is some evidence there has been an increase in sales. (c) The 95% confidence interval = mean 1.96st dev/n = 97.561.96 x 39.16/360 = 93.51 to 101.6 or 93,510 to 101,600

2 ft 1m1 for1.96, 1 ft 2 cao inc 000

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QUESTION 5

(a)

What are the benefits of a good quality control system to a business? (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. In a manufacturing process, the internal diameter of a boring is set at 200 mm, with a standard deviation of 2 mm. Samples of 8 items at a time are taken from the production line to check the accuracy of the manufacturing process.

(b)

(i)

Calculate the values of the action and warning limits and construct a quality control chart to monitor the manufacturing process. (8 marks) The results for 5 samples are given below. Plot these on your quality control chart and comment on the results. (4 marks)

(i)

sample number sample mean mm

1 201.2

2 197.5

3 201.9

4 202.3

5 198.7

(c)

The process mean changed to 200.1 mm and the standard deviation remained at 2 mm. Calculate the probability that the mean of a random sample of 8 components would be below the lower warning limit. (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 5 2 x2 (a) It reduces wastage and costs, improves product reputation.

x 1.96
(b) Warning Limits

1n 1.96/2 1 cao 1 cao

200 1.96

2 8 = 200 1.96 x 0.707 = 200 1.39 = 198.61 to 201.39 (198.6/201.4) x 3.09

3.09/3: 1 cao

Action Limits

n
1 cao

200 3.09 x 0.707 = 200 2.18 = 197.82 to 202.18 (197.8/202.2)

Quality Control Chart
203 202 201
UAL UWL

Plot of limits 1 cao, Scale 1, Labels and title 1, plot of means 2

Diameter mm

200 199

Mean

LWL

198
LAL

197 196 195 1 2 3

Sample number

Comment: the process is not in control. The mean values of the samples swing from below the LAL to above the UAL.

2 ft

(c)

z=

198.61 200.1 = 2.1 0.707

1m, 1ft, z 1 cao, p

Probability = 0.982 Answer = 1-0.982 = 0.018

1cao

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QUESTION 6

(a)

In what circumstances might a significance test based on the normal distribution be used in preference to a significance test based on the t distribution? (4 marks)

A company manufacturing light bulbs develops a new process which it claims increases the life of the bulbs. 10 bulbs from the old process are tested to destruction using the old process and a further 10 bulbs from the new process are tested to destruction.

Life using the old process (hours) Life using the new process (hours)

2,300

2,290

2,360

2,340

2,330

2,370

2,240

2,320

2,330

2,350

2,290

2,300

2,370

2,380

2,360

2,380

2,260

2,330

2,340

2,370

(b)

Test whether the new process has increased the life of the light bulbs. (12 marks)

(c)

What is meant by Type 1 error? From your conclusions in (b) might a type 1 error have been committed? (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 6 2x2

(a)

The normal distribution will be used when the sample size is large (greater than 30) and/or the population standard deviation is known.

Two means test (b) Null hypothesis: The new process has not increased the life of the light bulbs. Alternative Hypothesis: The new process has increased the life of the light bulbs. 2 cao

Degrees of Freedom = (n-1) + (m1) = (10-1) + (10-1) = 18 Critical t value = 1.73/2.55 X 2300 2290 2360 2340 2330 2370 2240 2320 2330 2350 x 23230 Y 2290 2300 2370 2380 2360 2380 2260 2330 2340 2370 y 23380

1cao

( x x )2
529 1089 1369 289 49 2209 6889 9 49 729

( y y)2
2304 1444 1024 1764 484 1764 6084 64 4 1024

( x x )2 =

13210

( y y ) 2 = 15960

x/ y 1cao
( x x ) 2 /

= 2323

y =2338

( x x ) 2 + ( y y ) 2 = 29170

( y y ) 2

1cao

s=

( x x ) 2 + ( y y ) 2 n+m2 =

13210 + 15960 10 + 10 2

x /y
1cao

29170 18 = 40.26

1m 1cao

2323 2338 x y 1 1 1 1 40.26 + s + 10 10 = -0.83 10 10 = t=

Conclusion: The calculated value of t is less than the critical value of t at the 0.05 significance level, therefore do not reject the null hypothesis. There is no evidence to support the claim that the new process has increased the life of light bulbs. (c) A type 1 error is when the null hypothesis is rejected when it should be accepted. A type 1 error cannot have occurred at the 0.05 level as the null hypothesis was not rejected.

1m 1cao

2 ft

2x2

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QUESTION 7 (a) Describe the four components of a time series. (4 marks) The table below shows the quarterly sales for a company in 000 units. Year 2008 2009 2010 Quarter 1 117 143 159 Quarter 2 133 152 198 Quarter 3 150 177 209 Quarter 4 188 252 325

(b)

Calculate the centered trend values and the average quarterly variations for the time series. (10 marks)

(c)

Estimate the sales for quarter 2 of 2011 and comment on the likely accuracy of the estimates. (6 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 7 (a) The four components of a time series are: (1) Trend the long term direction, (2) Cyclical variation due, for example, to the economic cycle, (3) Seasonal variation due, for example, to festive events (4) Residual or Random variation without any apparent explanation.

4x1 4 x 0.5 for naming factors

(b) Moving Total 1 Moving Total 2 Additive Difference Multiplicative Difference

Quarter 1 2 3 4 5 6 7 8 9 10 11 12

Sales 117 133 150 188 143 152 177 252 159 198 209 325

Trend

588 614 633 660 724 740 786 818 891

1202 1247 1293 1384 1464 1526 1604 1709

150.25 155.875 161.625 173 183 190.75 200.5 213.625

-0.25 32.125 -18.625 -21 -6 61.25 -41.5 -15.625

0.998 1.206 0.885 0.879 0.967 1.321 0.793 0.927 MT1 1m 1cao MT2 1m 1cao Trend 1m 1 cao Differences 1m 1cao

Average Seasonal Variation Additive Method Quarter 1 Quarter 2 Quarter 3 Quarter 4 -0.25 32.125 -6 61.25 -18.625 -21 -41.5 -15.625 -30.0625 -18.3125 -3.125 46.6875

1 transfer 1 cao

Average

Average Seasonal Variation Multiplicative Method Quarter 1 0.885 0.793 0.839

8

Quarter 2

Average

Quarter 3 Quarter 4 0.998 1.206 0.879 0.967 1.321 0.927 0.903 0.983 1.264 1m 1cao

Estimated Trend Growth = T -T = 213.625 150.25 = 63.375 = 9.05 n-1 81 7 Estimated trend for quarter 2, 2011 = 213.625 + (4 x 9.05) = 249.8 Estimated Sales Additive Method 2011 Quarter Estimated Additive Estimated trend Seasonal Sales Variation Additive Method Q2 249.8 -18.3 231.5 Multiplicative Seasonal Variation Q2 0.903 Estimated Sales Multiplicative Method 225.6

1m 1cao

2 it is Comment: The forecast is only two periods ahead, therefore relative stability can be expected but comment an extrapolation

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QUESTION 8 (a) Explain how: (i) (ii) a stratified random sample would be taken a quota sample would be taken.

In each case give one advantage and one disadvantage of the method. (8 marks)

(b)

Explain the term sampling distribution of the mean. (4 marks)

The data below was obtained from counting the number of customers visiting each of two branches of a company over a number of weeks during 2010.

Branch X Mean number of customers Standard deviation Sample size (no. weeks) 1516 158 32

Branch Y 1634 186 41

(c)

Test whether there is a significant difference between the mean number of customers visiting the two branches. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 8 (a) A stratified random sample would be taken by allotting all the relevant members of the sampling frame to different strata depending on characteristics. Select a random sample in each strata. Advantages: the sampling error can be calculated, the result can be used in further statistical calculation and it reduces the sampling error. Disadvantages: a sampling frame is necessary, the relevant characteristics need to be identified and the sample may be drawn from a widely dispersed geographical area. Quota sampling involves taking a sample with a given number of people. Often this is done by stopping people in the street. Interviewers are given quota controls ie the characteristics that the respondents should have. These often relate to age, gender and income. Advantages: the sample is relatively cheap, there is no need for a sampling frame and no need for call-backs. Disadvantages: there may be bias in the choice of respondents, theoretically the standard error cannot be calculated so significance tests are not valid. 2 for explanation

1 adv 1 dis adv

2 for explanation (1 given number 1 quota control) 1 adv 1 dis adv 2x2

(b)

The sampling distribution of the mean refers to the variability which occurs in the value of the means as different samples of the same size are taken. The standard error of the means equals /n. Null hypothesis: There is no difference in the number of customers visiting Branch X and Branch Y Alternative hypothesis: there is a difference in the number of customers visiting Branch X and Branch Y Critical z value 1.96/2.58

(c)

1 NH

1 AH

1 cao

x1 x2 s s + n1 n2
2 1 2 2

1m

z =

1516 1634 158 2

=

32

186 2 41

1 ft

= 118.0 = -2.93 40.30 Reject the null hypothesis, there is strong evidence there is a difference in the number of customers visiting Branch X and Branch Y.

1cao

2ft

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LEVEL 3

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Education Development International plc 2011

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