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Business Statistics

Level 3

Model Answers
Series 4 2007 (Code 3009)

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Business Statistics Level 3


Series 4 2007

How to use this booklet Model Answers have been developed by Education Development International plc (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)

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Business Statistics Level 3


Series 4 2007
QUESTION 1 The directors of a company decided to analyse its debt. A random sample of 1000 debts was selected and the following results were obtained:

Range of Debts 0 200 400 600 1000 and less than and less than and less than and less than and less than 200 400 600 1000 2000

Number of debts 220 340 190 200 50

(a) Calculate the mean and standard deviation debt, giving your answers to the nearest whole . (8 marks) The value of the median is 365. (b) Calculate the coefficient of skewness and comment on your answer. (4 marks) (c) Last year the average debt was 432. Test whether there has been a significant increase in average debt. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 1 (a) Range of Debts 0 200 400 600 1000 and less than and less than and less than and less than and less than 200 400 600 1000 2000 100 300 500 800 1500 220 Mid Pt Number of debts fx 22000 340 102000 190 95000 200 160000 50 75000 1000 454000 fx2 2200000 30600000 47500000 128000000 112500000 320800000 fx2

f fx 454000 x = f = 1000 = 454 Standard Deviation =

fx

320800000 454000 1000 1000


114684 = 339

(b) Coefficient of skew =

3(Mean Median ) 3(454 365) = = 0.788 SD 339

Comment: There is some positive skew (c) Null hypothesis: There has not been an increase in the average debt, compared with the previous year. Alternative hypothesis: There has been an increase in the average debt, compared with the previous year. Critical z = 1.64/2.33

z=

454 432 339 1000

22 = 2.05 10.72

Conclusions: There is evidence to suggest that the average debt has increased at the 0.05 significance level. Reject the null hypothesis, accept the alternative hypothesis. There has been an increase in average debts. However, at the 0.01 level there is insufficient evidence to reject the null hypothesis. The companys average debt has not increased.

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QUESTION 2 (a) Explain how you would decide whether to use the additive model or the multiplicative model to analyse a time series. (4 marks) The following data show the quarterly production of a company for the past three years: Year 2004 2005 2006 Jan-Mar 48 64 72 Production (000 Units) Apr-June Jul-Sept 56 70 76 86 100 108 Oct-Dec 96 132 188 (3 marks) (c) Using a suitable model, find using the method of moving averages, the trend and average seasonal variations. Plot the trend on your graph. (13 marks) (Total 20 marks)

(b) Plot the time series.

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MODEL ANSWER TO QUESTION 2 (a) The choice of the additive or the multiplicative model in times series depends upon the nature of the data. If, for example, there is a strong trend in the data and the seasonal variations are increasing as the trend increases the multiplicative model is used. However, if the seasonal variations are not increasing absolutely as the trend increases the additive model can be used. Or, graphs can be used to illustrate these points. (b)
Production v Time
200 180 160 Production (000) 140 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 Quarters

(c) Production Moving Total 1 Moving Total 2 Trend/ Moving Average Additive differences Multiplicative Differences

48 56 70 96 64 76 86 132 72 100 108 188

270 286 306 322 358 366 390 412 468

556 592 628 680 724 756 802 880

69.50 74.00 78.50 85.00 90.50 94.50 100.25 110.00

0.50 22.00 -14.50 -9.00 -4.50 37.50 -28.25 -10.00

1.007 1.297 0.815 0.894 0.950 1.397 0.718 0.909

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MODEL ANSWER TO QUESTION 2 CONTINUED Quarter 2 3 0.5 -9 -4.5 -10 -19 -4.0 -9.5 -2.0

Year 2004 2005 2006 Average seasonal variation Or

1 -14.5 -28.25 -42.75 -21.375

4 22 37.5 59.5 29.75

Quarter Year 2004 2005 2006 Average seasonal variation 1 0.815 0.718 1.533 0.7665 2 0.894 0.909 1.803 0.9015 3 1.007 0.95 1.957 0.9785 4 1.297 1.397 2.694 1.347

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QUESTION 3 (a) State two reasons why samples might be selected from a population instead of the whole population being examined. (4 marks) A batch of 500 goods received notes were given numbers in the range 100151 to100650 inclusive. A sample of 10 of these goods received notes is required. Extract from Random Number Tables 56702 57354 80593 98188 14876 93301 30875 97203 69253 88932 76666 55880 13829 75436 65734 06604 11200 02591 92835 89277

(b) Using the random number table above, explain briefly how you would select a simple random sample of 10 goods received notes. (8 marks) The goods received notes referred to above, were received by two departments. 100151 to 100400 were received by department A, and 100401 to 100650 were received by department B. (c) Using this additional information and the random number table above, select a stratified random sample of 10 goods received notes, explaining briefly how you obtained the sample. (8 marks) (Total 20 marks) MODEL ANSWER TO QUESTION 3 (a) A sample may be used in preference to the whole population to save time and costs. In the case of destructive testing a sample is the only sensible approach. (b) A simple random sample requires that all the population have an equal chance of being chosen. Using the sequence of numbers which the goods received notes (GRN) already have identifies each item in the population. The initial three digits can be ignored and the number treated as though they run from 151 to 650.From the random number tables three digit numbers are chosen which lie between 151 and 650. If the number chosen lies below 151 or above 650 it is rejected and a further number drawn until 10 numbers in the range 151 to 650 have been selected. For example 567 is chosen, 029 rejected, 330, 176 are chosen, 666 rejected and so on until the 10 GRN have been identified. The following valid random numbers would form a random sample of 10: 567, 330, 176, 430, 558, 593, 382, 591, 375 and 436. (c) This information means that half the population is from department A and half from department B. The sample will have to reflect this in the numbers drawn above for the random sample. 4: 330, 176, 382 and 375, are from department A and 5: 430, 436, 567, 558 and 593 are from department B. The final random number will have to be rejected and a further number drawn until one in the range 151 to 400 is obtained. This would be 351.

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QUESTION 4 (a) State two benefits of a good quality control system to a business. (4 marks) A manufacturer uses quality control procedures which set the warning limits at the 0.025 probability point and the 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. The volume of a can of paint is set at 1025 millilitres with a standard deviation of 20 millilitres. Samples of 8 items are taken from the production line to check the accuracy of the production process. (b) (i) (ii) Calculate the values of the warning and action limits and construct a quality control chart to monitor the production process. (8 marks) The results for 6 samples are given below.

Plot these on your quality control chart and comment on the stability of the production process. Sample number Sample mean ml 1 1015 2 1020 3 1002 4 1020 5 1050 6 1048 (4 marks) (c) If the process mean changed to 1040 millilitres and the standard deviation remained at 20 millilitres calculate the probability that the mean of a random sample of 8 would be below the upper action limit (using the existing control chart). (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 4 (a) Age x 3 7 11 13 15 19 21 24 29 142 x Value y 104 101 92 86 83 71 59 52 46 694 y x2 9 49 121 169 225 361 441 576 841 2792 x2 xy 312 707 1012 1118 1245 1349 1239 1248 1334 9564 xy

b=

n xy ( x )( y ) n x 2 ( x )
2

b= b=

9 9564 142 694 9 2792 1422 12472 = -2.512 4964

a=

y bx
n n

a=

694 142 2.512 9 9

a = 77.11 39.64 = 116.75


y = 116.75-2.512x (b) (i) 116.75 12 x 2.512 = 86.6

(ii) 116.75 35 x 2.512 = 28.8 (iii) Comment: (b) (i) is based on interpolation, whilst (ii) is an extrapolation. It is likely that (b) (i) will be more accurate. (c) Null hypothesis: The correlation coefficient does not differ significantly from zero. Alternative hypothesis: The correlation coefficient does differ significantly from zero. Degrees of freedom n-2 =9-2 =7 Critical t = 2.37/3.5

t = r n 2 = 0.98 9 2 = 13.03 1 r2 1 0.98 2


Conclusion: The result is highly significant, the correlation differs from zero

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QUESTION 5 A company uses 2 initial assessment procedures in deciding the suitability of staff for appointments: a psychometric test and an assessment by an interviewing panel. After a six month probationary period for the successful candidates the personnel department obtains an assessment of the suitability of each of the candidates from their manager. The following data show the results for the selection procedures and the managers assessment of the suitability of the candidates: Candidate A B C D E F G H I J Psychometric Test 54 72 38 51 66 45 58 51 43 40 Interview Score 28 57 38 38 44 41 53 55 59 40 Managers Assessment 55 68 43 50 31 51 62 59 65 38 (6 marks) (b) Calculate the Spearmans Rank correlation coefficient for the Psychometric Test and Interview score. (8 marks) The Spearmans Rank correlation coefficient for Interview and Managers Assessment is 0.63 and for Psychometric Testing and Managers Assessment is 0.33. (c) Write a brief report on your findings obtained in part (a) and the information above. (6 marks) (Total 20 marks)

(a) Rank each set of data.

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MODEL ANSWER TO QUESTION 5 (a) Ranking if using equal ranks.

Candidate Psychometric Test Interview Score Managers Assessment A B C D E F G H I J 4 1 10 5= 2 7 3 5= 8 9 10 2 8= 8= 5 6 4 3 1 7 5 1 8 7 10 6 3 4 2 9

Or if using mean ranks.

Candidate Psychometric Test Interview Score Managers Assessment A B C D E F G H I J 4 1 10 5.5 2 7 3 5.5 8 9 10 2 8.5 8.5 5 6 4 3 1 7 5 1 8 7 10 6 3 4 2 9

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MODEL ANSWER TO QUESTION 5 CONTINUED Psychometric Test 4 1 10 5.5 2 7 3 5.5 8 9 Interview 10 2 8.5 8.5 5 6 4 3 1 7 d 6 1 1.5 3 3 1 1 2.5 7 2 d2 36 1 2.25 9 9 1 1 6.25 49 4

d
Rank Correlation coefficient R = 1

= 118.5

6 d 2 n n2 1

711 6 118.5 =1 = 1-0.718 = 0.282 2 990 10(10 1)

(c) Brief Report: Topic, To whom addressed, Date All three coefficients are positive. They lie between 0.28 and 0.64. The relationships between psychometric test and Interview Score, and Psychometric Test and Managers Assessment are both weak. The relationship between Interview Score and Managers Assessment is stronger, perhaps showing that only one of interview score and managers score is needed.

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QUESTION 6 (a) Briefly explain two business uses of the Normal Distribution. (4 marks) A company makes a product which passes through three departments: Mechanical, Electronics and Assembly. The mean and standard deviation for the time (in minutes) that a product spends in each department is given below. Assume that the times follow a normal distribution. Minutes Mean 24 22 46 Standard Deviation 8 4 8

Mechanical Electronic Assembly

(b) For Assembly, find the probability that the time involved will: (i) be less than 34 minutes (ii) exceed 66 minutes (iii) be between 34 and 66 minutes (6 marks) (c) Find the probability that the total time to make the product will exceed 116 minutes. (6 marks) (d) Find the time below which 95% of the products will be made. (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 6 (a) (b) (i) The basis for mean charts is statistical quality control. To calculate the proportion of items which falls within given limits, where the population is normally distributed, e.g. physical dimension, heights. Significance test for product improvement, e.g. drug tests. Probability less than 34 minutes z =

34 46 xx = = -1.5 sd 8

Table probability = 0.933, required probability = 0.067 (ii) Probability more than 66 minutes z =

66 46 xx = = 2.5 sd 8

Table probability = 0.994, required probability = 1- 0.994 = 0.006 (iii) Probability between 34 and 66 minutes = 1- (0.067 + 0.006) = 1- .073 = 0.927 (c) Joint mean = x M + x E + x A = 24 + 22 + 46 = 92 Joint standard deviation = =
2 2 2 sd M + sd E + sd A =

82 + 4 2 + 82

144 = 12 116 92 24 xx z= z= = =2 sd 12 12
Table probability = 0.977, required probability = 1- 0.977 = 0.023 (d) Required z value = 1.64

z=

x 92 xx + 1.64 = + 1.64 12 = x 92 = 111.68 sd 12

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QUESTION 7 (a) Explain why a significant association between two factors does not necessarily mean that there is cause-effect relationship between them. Give a suitable business example to illustrate your answer. (4 marks) A random sample of employees of a company was selected and the employees were asked to complete a questionnaire. One question was whether the employees were in favour of the introduction of flexible working hours. The following table classifies the employees by their response and gender, i.e. male or female Gender In favour Not in favour Undecided Female 67 43 20 Male 83 37 30 (12 marks) (b) By combining the data for male and female, find the 95% confidence interval for the proportion of employees in favour of flexible working. (4 marks) (Total 20 marks)

(b) Test whether there is an association between gender and views.

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MODEL ANSWER TO QUESTION 7 (a) There may be a third, unknown variable, which is the causal factor. Association only signifies a connectedness. The direction of causation might be uncertain. There may be spurious or false association with no underlying theoretical basis for the association. There may be other variables which are not isolated. Example: Increases in pay causes an increase in productivity. There may have been an increase in capital equipment. (b) Null hypothesis: There is no association between gender and views on flexible hours. Alternative hypothesis: There is association between gender and views on flexible hours. Degrees of freedom = (R-1)(C-1) = (3-1)(2-1) = 2 Critical X = 5.99/9.21 Expected In favour Not in favour Undecided Contributions to X 0.100 0.924 0.445 0.087 0.800 0.386 X = 2.742 Female 69.6 37.1 23.2 Male 80.4 42.9 26.8 Total 150 80 50

Conclusion: The calculated value of X2 is less than the critical value at the 0.05 level of significance; there is insufficient evidence to reject the null hypothesis. There is no association between gender and views on flexible hours. (c) Number of males and females in favour of flexible working = 67+83 = 150 Proportion in favour = 150/280 = 0.536 95% CI = p 1.96 CI = 0.478 to 0.594

p (1 p ) 0.536 0.464 = 0.536 1.96 n 280

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QUESTION 8 (a) Explain the circumstances in which a paired t test is used in preference to a two independent sample test. (4 marks)

The directors of a company were concerned that advertisements for new staff on the internet were attracting too many unsuitable candidates. The format of the advertisements was restyled. After the new format had been used for six months the company examined a random sample of advertised posts before and after the change had taken place. The number of unsuitable candidates for each post was counted. The results were as follows: Before change of advertisement After change of advertisement (b) Number of unsuitable candidates 24 26 18 24 18 18 24 20 12 24 28 28 32 18

12

Test whether there is a decrease in the mean number of unsuitable candidates after the change of advertisement. (14 marks) In part (b), might a type 1 error have occurred? Explain your answer. (2 marks) (Total 20 marks)

(c)

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MODEL ANSWER TO QUESTION 8 (a) A paired t test is used in preference to the two sample independent tests when a single sample is subject to two treatments, e.g. a before and after test on the same people or items. The two independent sample test is when two different samples are subject to different treatments or the same treatment. (b) Null hypothesis: the number of unsuitable candidates does not decrease after the change in advertising. Alternative hypothesis: the number of unsuitable candidates decreases after the change in advertising. Degrees of freedom = n + m 2 = 7+9 2 = 14 One tail critical to 0.05/0.01 = 1.76/2.62 x 24 26 18 24 18 28 32 y 18 24 20 12 24 28 18 12 170 x1 24.29 8 164 y 18.22 4284 x2 x2 576 676 324 576 324 784 1024 y2 324 576 400 144 576 784 324 144 64 3336 y2 155.43 x x

(x x )
0.08 2.94 39.51 0.08 39.51 13.80 59.51

(y y )
0.05 33.38 3.16 38.72 33.38 95.60 0.05 38.72 104.49 347.56

y y

( )

s=

xx + y y n+m2
x y 1 1 s + n m

155.43 + 347.56 = 5.99 7+92

t=

24.29 18.22 1 1 5.99 + 7 9

6.06 3.02

= 2.01

Conclusion: The calculated value of t is greater than the critical value of t (at the 5% significance level); there is sufficient evidence to reject the null hypothesis. The number of unsuitable candidates does decrease after the change in advertising. (c) The null hypothesis has been rejected, therefore type 1 error might have occurred.

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Education Development International plc 2007