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Business Statistics

Level 3

Model Answers
Series 3 2007 (Code 3009)

Business Statistics Level 3


Series 3 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)

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 2007 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 Over the past 9 years a company has achieved the following market share Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 Market Share % 22.3 21.6 22.0 21.1 20.8 19.9 19.5 18.4 17.6 (4 marks) (b) Calculate and state the least squares regression line for Market Share dependent on Year. (10 marks) (c) Use the regression line found in (b) to estimate the year in which market share is likely to fall to 15% and comment upon the accuracy of your estimate. (6 marks) (Total 20 marks)

(a) Plot the data on a graph and comment on the pattern shown.

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MODEL ANSWER TO QUESTION 1 (a)


Market Share % v Time
23 22 21 Market Share % 20 19 18 17 16 15 1998

1999

2000

2001

2002 Year

2003

2004

2005

2006

Comment: The market share is decreasing over time. (b) Year x 1 2 3 4 5 6 7 8 9 45 x Market Share % y 22.3 21.6 22.0 21.1 20.8 19.9 19.5 18.4 17.6 183.2 y

x2 1 4 9 16 25 36 49 64 81 285 x2

xy 22.3 43.2 66.0 84.4 104.0 119.4 136.5 147.2 158.4 881.4 xy

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CONTINUED ON THE NEXT PAGE

MODEL ANSWER TO QUESTION 1 CONTINUED

b=

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

b=

(9 x881.4) (45 x183.2) 9 x 285 45 2

b = -311.4 = -0.577 (-0.58) 540

a=

n n 183.2 45 a= 0.577 x 9 9

y bx

If x goes from 1998 to 2006 the equation is y = 1174.84-0.577x

a = 20.36 +2.89 = 23.25 Y = 23.25 0.577x (c) Y = 23.25-0.557x 15 = 23.25 0.577x x = 23.25 15 0.577 x = 14.29 Round up to 15 Therefore year is 2012 The answer is an extrapolation and therefore subject to uncertainty. In real life the business might change strategy to protect its market share. A better estimate would have been obtained from using the regression line for year on market share.

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QUESTION 2 (a) Explain what is meant by a 90% confidence interval for a sample proportion. (4 marks) A company is concerned about the level of customer satisfaction with the service provided by its domestic and overseas call centre operations. A random sample of customers calling its domestic call centre showed that 267 out of 400 were satisfied or very satisfied with the service. A random sample of customers calling its overseas call centre showed that 350 out of 500 were satisfied or very satisfied with the service. (b) Test whether there is a difference in the proportion of customers satisfied or very satisfied with the service provided at the two call centres. (12 marks) (c) Explain what is meant by a type 2 error. Might such an error have been committed in part (b) above? (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 2 (a) The 90% confidence interval means that if samples of the same size are taken the sample proportion will lie within the stated range 90 times out of 100. (b) Null hypothesis: there is no difference in the proportion satisfied or very satisfied with the customer service from its domestic and overseas call centres. Alternative hypothesis: there is a difference in the proportion satisfied or very satisfied with the customer service from its domestic and overseas call centres. Critical z value = 1.96/2.58 p1 = 267/400 = 0.6675, Pooled value of p = p2 = 350/500 = 0.7

267 + 350 617 = = 0.6856 400 + 500 900


0.0325

z=

0.6675 0.7 1 1 0.6856(1 0.6856) + 400 500

0.2156(0.0045)

= - 1.04

Conclusions: There is insufficient evidence to reject the null hypothesis at the 5% significance level. There is no difference in the proportion satisfied or very satisfied with the customer service from its domestic and overseas call centres. (c) A type 2 error is to accept the null hypothesis when it is false. A type 2 error may have been committed.

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QUESTION 3 The consumer price index and the index of average earnings are as follows: Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 estimate Consumer Price Index 100.0 101.8 103.4 104.8 105.7 106.9 108.3 109.8 111.2 113.5 116.7 Index of Average Earnings 83.3 86.8 91.3 95.7 100.0 104.4 108.1 111.7 116.7 121.4 127.0

(a) Rebase the index of average earnings to 1996 as the base year = 100 (4 marks) (b) Using the information in the table and your answer to part (a), calculate an index of average real earnings with 1996 as the base year. (4 marks) A workers wage has risen, between the years 1996 to 2006, from 350.64 to 420.78. (c) What further increase would be necessary to enable the workers wage to keep pace with the Real Earnings Index? (4 marks) (d) (i) (ii) Explain how you would carry out a Quota Sample and give one advantage and one disadvantage of the method. Explain how you would carry out a Systematic Sample and give one advantage and one disadvantage of the method. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 3 (a) Conversion of Index of Average Earnings to base year 1996 = 100 Divide by 83.3 multiply by 100 throughout Index of Average Index of Earnings Average Rebased Earnings 1996 =100 83.3 86.8 91.3 95.7 100.0 104.4 108.1 111.7 116.7 121.4 127.0 100.0 104.2 109.6 114.9 120.0 125.3 129.8 134.1 140.1 145.7 152.5

Year

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

(b) Index of average real earnings Divide Rebased Index of Earnings by Consumer Price Index Index of Average Index of Consumer Earnings Real Price Rebased Earnings Index 1996 =100 100 101.8 103.4 104.8 105.7 106.9 108.3 109.8 111.2 113.5 116.7 100.0 104.2 109.6 114.9 120.0 125.3 129.8 134.1 140.1 145.7 152.5 100.0 102.4 106.0 109.6 113.5 117.2 119.9 122.1 126.0 128.4 130.7

Year

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

(c) 350.64 x 130.7/100 = 458.29 -420.78 = 37.51

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CONTINUED ON THE NEXT PAGE

MODEL ANSWER TO QUESTION 3 CONTINUED (d) (i) 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 i.e. the characteristics that the respondents should have. These often relate to age, gender and income. The advantages are the sample is relatively cheap; there is no need for a sampling frame and no need for call-backs. The disadvantages are there may be bias in the choice of respondents, theoretically the standard error cannot be calculated so significance tests are not valid. Systematic sampling involves taking a sample at a given interval. The interval is determined by the sampling proportion e.g. a 10% sampling proportion would mean items are chosen every 10 items. The first item to be chosen would be selected randomly between 1 and 10 e.g. 4 and the 4th, 14th, 24th etc item sampled. The advantages are the method is relatively cheap. The disadvantages are there may be a natural period in the subjects and the method excludes or includes particular subjects and theoretically the standard error cannot be calculated so significance tests are not valid.

(ii)

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QUESTION 4 (a) Explain the difference between a paired t test and a two independent sample means test. (4 marks) Two random samples of twelve car hire companies were taken in countries X and Y. The car rental costs in per 10 day hire for a standard four door 2000 cc saloon are given in the table below. Car Rental Costs in Country X 350 525 550 525 390 540 525 570 530 650 540 590 Car Rental Costs in Country Y 525 340 430 520 670 470 520 540 650 650 680 450 (12 marks) (c) Explain what is meant by the sampling distribution of the mean. (4 marks) (Total 20 marks)

(b) Test whether the car rentals paid in country X differ from those paid in Country Y.

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MODEL ANSWER TO QUESTION 4 (a) A paired t test is used when a single sample is subject to two treatments, for example, before and after: a two independent sample means test is used when the results from two separate samples are compared in respect of a stated parameter, the mean. (b) Null hypothesis: there is no difference in the car rentals paid in country X and country Y. Alternative hypothesis: There is a difference in the car rentals paid in country X and country Y Degrees of freedom n + m 2 = 12+12 2 = 22 Critical t values 2.07/2.82 x 350 525 550 525 390 540 525 570 530 650 540 590 6285 x y 525 340 430 520 670 470 520 540 650 650 680 450 6445 y x2 122500 275625 302500 275625 152100 291600 275625 324900 280900 422500 291600 348100 3363575 x2 y2 275625 115600 184900 270400 448900 220900 270400 291600 422500 422500 462400 202500 3588225 y2

(x x ) (y y )
2

30189.06 1.5625 1.5625 17889.06 264.0625 1.5625 2139.063 39.0625 15939.06 264.0625 4389.063 71806.25 xx

1.5625 33764.06 14.0625 21389.06 2889.063 14.0625 264.0625 15939.06 15939.06 24414.06 5439.063 128856.3
2

689.0625 8789.063

) (y y )
2

x=

6285 = 523.75 12
( x x ) 2 + ( y y) 2 n+m2

y =

6445 = 537.083 12

s=

s=

71806.25 + 128856.3 12 + 12 2

s = 95.5 (95.0)

t= s

x y 1 1 + n m

t=

523.75 537.083 = -0.34 1 1 95.5 + 12 12

Conclusions: There is insufficient evidence to reject the null hypothesis. There is no difference in the car rentals paid in country X and country Y. (c) When a large number of samples of a given size are taken from a population the mean values will vary from sample to sample. If the sample size is large (30 and greater) the sample means will be normally distributed. If the sample size is small (less than 30) the means will be distributed in accordance with the t distribution with n-1 degrees of freedom.

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QUESTION 5 (a) Explain what the difference is between a one tail and a two tail test. (4 marks) The records of a company for two manufacturing plants X and Y, contain the following data on order value for the past year: Plant X Mean order value Median order value Standard deviation Sample size 760 720 145 35 Plant Y 698 665 135 40

(b) Calculate the coefficient of skewness for both plants and comment on your answers. (4 marks) (c) Test whether the mean order value is significantly higher in plant X than in plant Y. (8 marks) When the order values of the two plants are combined the mean order value for the company as a whole is found to be 726.93 and the standard deviation is 139.76. (d) Calculate the 95% confidence interval for the overall mean order value. (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 5 (a) A one tail test tests if the difference between two samples varies in a single direction either greater or smaller; a two tail test tests if the difference between two samples varies in either direction (greater or smaller). (b) Coefficient of Skew = Plant X = Plant Y = 3(Mean Median) Standard Deviation 3(760 -720) = 120/145 = 0.828 145 3(698 665) = 99/135 = 0.733 135

Both distribution are positively skewed, Plant X is more skewed than plant Y.

(c) Null hypothesis: There is no difference in the mean order value between plant X and plant Y. Alternative hypothesis: The mean order value in plant X is greater than in plant Y. Critical z value = 1.64/2.33

z=

x1 x 2
2 s12 s 2 + n1 n2

760 698 1452 35


+

1352 40

62 = 1.908 600.71 + 455.625

Conclusions: There is evidence to support the alternative hypothesis at the 0.05 level; the mean order value at plant X is greater than the mean order value at plant Y. At the 0.01 level there is insufficient evidence to support the alternative hypothesis; the mean order value does not differ between the two plants.

(e) 95% confidence interval = x 1.96

726.93 1.96

139.76 75

= 726.93 31.63 = 695.30 to 758.56

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QUESTION 6 A random sample is taken of workers in different sectors of the economy and the number of days they are absent on sick leave in 2006 are recorded in the table below. Sector of the Economy Public Sector Sick Leave Taken Less than 5 days sick leave 5 days and less than 10 days sick leave 10 or more days sick leave 35 95 70 Domestic Owned Private 45 102 53 Foreign Owned Private 20 35 45

(a) Test whether there is any association between the sector of the economy and the amount of sick leave taken. (12 marks) In a similar survey carried out 5 years earlier the proportions of people taking sick leave were as follows. Less than 5 days sick leave 17% and less than 10 days sick leave 54% 10 or more days sick leave 29% (8 marks) (Total 20 marks)

(b) Test whether the pattern of sick leave taken has changed over the period.

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MODEL ANSWER TO QUESTION 6 (a) Null hypothesis: there is no association between the sector of the economy and the number of days sick leave taken. Alternative hypothesis: there is association between the sector of the economy and the number of days sick leave taken. Degrees of freedom (R-1)(C-1) = (3-1)(3-1) = 4 Critical 2 = 9.49/13.28 Observed 35 95 70 Expected 40 92.8 67.2 Contributions to X2 0.625 0.625 0 0.052155 0.912069 2.800862 0.116667 3.000595 3.867857 X2 = 12.00021 Conclusions: The calculated value of X2, 12.00 is more than the critical value of X2 at the 0.05 level: reject the null hypothesis there is evidence to support the alternative hypothesis. There is association between the work sector and the number of days sick leave taken. The calculated value of X2, 12.00 is less than the critical value of X2 at the 0.01 level, there is insufficient evidence to reject the null hypothesis: there is no association between the work sector and the number of days sick leave taken. (b) Null hypothesis: the pattern of sick leave has not changed. Alternative hypothesis: the pattern of sick leave has changed. Degrees of freedom = n-1 = 3-1 = 2 Critical X2 = 5.99/9.21 Observed Expected Contributions to X2 100 85 2.65 232 270 5.35 168 145 3.65 X2 = 40 92.8 67.2 20 46.4 33.6 45 102 53 20 35 45

11.65

Conclusions: The calculated value of X2 is greater than the critical value of X2 at both the 0.05 and 0.01 levels: reject the null hypothesis accept the alternative hypothesis. There is strong evidence to support the alternative hypothesis, the pattern of sick leave has changed.

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QUESTION 7 A companys largest selling product has average weekly sales of 2500 units with standard deviation 250 units. Assume that weekly sales are normally distributed. (a) Find the probability that weekly sales: (i) (ii) exceed 3050 units lie between 3100 units and 2200 units (8 marks) (b) Find the level of sales which will be exceeded on 90% of occasions. (3 marks) The same company is planning the launch of a new product. It estimates that the probability of good economic conditions is 70%. If economic conditions are good the probability of the workforce accepting a new wage offer is 30%; if economic conditions are poor the probability of the workforce accepting a new wage offer is 50%. (c) Find the probability that the wage offer is accepted. (5 marks) (d) If the wage offer is accepted what is the probability that the economic conditions were poor. (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 7 (a) (i) probability that sales exceed 3050 units

z=

xx

3050 2500 550 = = 2.2 250 250

Probability = 1 0.986 = 0.014 (ii) probability that sales lie between 3100 units and 2200 units.

Probability of sales between 2500 and 3100

z=

xx

3100 2500 600 = = 2.4 250 250

Probability = 0.992 0.5 = 0.492 Probability of sales between 2500 and 2200

z=

xx

2200 2500 300 = = 1.2 250 250

Probability = 0.885 0.5 = 0.385 Probability of sales 2200 to 3100 = 0.492 +0.385 = 0.877 (b) Nearest table value for 90%/0.90 is z = 1.3

z= 1.3 =

xx

x 2500 250

x = (-1.3 x 250) + 2500 - 325 +2500 = 2175 units


(c) Probability that the wage offer is accepted. Good economic conditions and wage offer accepted = 0.7 x 0.3 = 0.21 + Poor economic conditions and wage offer accepted = 0.3 x 0.5 = 0.15 = 0.36 (d) Probability poor economic conditions and wage offer accepted = 0.15 = 0.4167 (0.42) Probability wage offer accepted 0.36

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QUESTION 8 (a) Explain how the mean and range chart are used in quality control. (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 weight of a packet of biscuits is set at 150 grams with a standard deviation of 8 grams. 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 7 samples are given below. Plot these on your quality control chart and comment on the results. (4 marks) 1 2 150.5 156.4 3 143.9 4 152.9 5 6 148.13 159.5 7 157.6

(ii)

sample number sample mean (grams)

(c) Find the probability that a single item taken from the production line lies outside the action limits. You may assume that the control chart was correctly set up with mean 150 grams and standard deviation 8 grams. (4 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 8 (a) When a product is made to a standard the aim is that average dimension of a sample is close to the specified value. It is also intended that the variability of the item should remain constant. The mean chart checks that the average stays within acceptable limits and the range chart checks that the variability of the product stays within acceptable limits. (b) Warning Limits = x 1.96

150 1.96

8 = 144.5 to 155.5 8

Action Limits = x 3.09

= 141.3 to 158.7

Quality Control Chart


165.0

160.0

UAL UWL Mean LWL LAL

155.0 Weight grams

150.0

145.0

140.0

135.0 1 2 3 4 Sample Number 5 6 7

The process is outside the action limits at sample 6. It needs to be stopped and adjusted. (c) Probability an item lies above the upper action limit

z=

= z=

158.7 150 = 8.7/8 = 1.09 8

Probability for table value for z = 1.09 (1.1) = 0.864 Required probability = 1- 0.864 = 0.136 Probability an item lies below the lower action limit = 0.136 Total Probability = 0.272

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