LCCI International Qualifications

Business Statistics Level 3

Model Answers
Series 4 2010 (3009)

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Business Statistics Level 3

Series 4 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) When might a measure of rank correlation be used in preference to the product-moment correlation coefficient? (4 marks)

A random sample of cars was used to measure the relationship between the official fuel consumption and the engine capacity of the car. The results are given below. Engine capacity (litres) 1.2 1.4 1.6 2.0 4.7 1.6 3.5 5.5 3.0 (Source Whatcar? September 2008) (b) (c) Calculate the product-moment correlation coefficient and comment on your answer. Test whether the correlation coefficient differs significantly from zero. (10 marks) (6 marks) (Total 20 marks) Petrol Consumption (Miles per gallon) 47.8 45.5 42.8 34.0 18.0 40.9 31.0 24.4 25.9

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MODEL ANSWER TO QUESTION 1 (a) The rank correlation coefficient is used when only ordinal or positional data is available; product-moment correlation is used when interval data is available (b) Engine Petrol capacity litres Consumption Miles per gallon x 1.2 1.4 1.6 2.0 4.7 1.6 3.5 5.5 3.0 24.5 x y 47.8 45.5 42.8 34.0 18.0 40.9 31.0 24.4 25.9 310.3 y x
2

xy 57.36 63.70 68.48 68.00 84.60 65.44 108.50 134.20 77.70 727.98 xy

1.44 1.96 2.56 4.00 22.09 2.56 12.25 30.25 9.00 86.11 x
2

2284.84 2070.25 1831.84 1156.00 324.00 1672.81 961.00 595.36 670.81 11566.91 y
2

r n

n x2

xy x
2

x n y2

y y
2

9 727.98 24.5 310.3 9 86.11 24.5 2 9 11566.91 310.3 2

r
r

1050.53 174.74 7816.1

0.8989 (-0.9)

Strong negative correlation

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QUESTION 1 CONTINUED (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 = 9-2 = 7 Critical t value =2.37/3.50

r n 2 1 r2

0.8989 9 2 1 (0.8989) 2

= -5.43

Conclusion, The calculated t value is greater than the critical t value at 0.05 and 0.01 levels. Reject the null hypothesis there is a highly significant difference from 0

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QUESTION 2 (a) Distinguish between the circumstances in which a paired t test is used in preference to a twosample independent t test. (4 marks)

A company took a random sample of the expenses claimed by senior managers in 2008 and 2009. (data to the nearest hundred) 2008 42 44 45 48 55 56 46 42 2009 45 46 60 52 45 52 49 53 45

(b) (c)

Test whether there has been a significant increase in expenses between the two years. (14 marks) If a two tail test had been carried out would the conclusion remain the same as that drawn in part (b)? Justify your answer. (2 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 2 (a) A paired t test will be used where a single sample is subject to two treatments or a before and after measurement. A two independent sample test is used when two different samples are compared. Null hypothesis: There has not been an increase in the level of expenses between 2008 and 2009. Alternative hypothesis: There has been an increase in expenses between 2003 and 2004. Critical value of t at 0.05 significance level, 8+9-2 =15 degrees of freedom = 1.750.05/2.600.01 1 tail 2008 2009 42 44 45 48 55 56 46 42 378 x 45 46 60 52 45 52 49 53 45 447 y
378 8
2

(b)

y2
2025 2116 3600 2704 2025 2704 2401 2809 2025 22409 y
2

x1

x1

1764 1936 2025 2304 3025 3136 2116 1764 18070 x = 47.25
2

27.563 10.563 5.0625 0.5625 60.063 76.563 1.5625 27.563 209.5

21.778 13.444 106.78 5.4444 21.778 5.4444 0.4444 11.111 21.778 208

x1

x1

x2

x2

x1 n

x2 n

447 = 49.67 9

s1

x2 n

x n

18070 8

378 8

= 5.12

or

x n

209.5 = 5.12 8

s2

y2 m

y m

22409 9

447 9

= 4.81

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QUESTION 2 CONTINUED

or

y y m

208 = 4.81 9

s=

2 n s12 m s 2 or s = n m 2

x n

y 2

= 5.28

t s

x 1 n1

y 1 m

47.25 49.67 5.28 1 8 1 9

2.42 = - 0.94 2.56

Conclusions: The calculated value of t is less than the critical value of t. 0.05 There is no evidence to reject the null hypothesis. There has not been an increase in the level of expenses between 2008 and 2009. (c) The critical values of t0.05/0.01 would be 2.13/2.95. The answer would be the same at the 0.05 significance level where the null hypothesis would not be rejected. The answer would remain the same at the 0.01 significance level.

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QUESTION 3 A company suspects there are regional differences within the UK in the form of transport used by its customers to visit its DIY superstores. It carries out a random sample of customers transport use. Region Midlands 256 121 73

North UK Form of Transport Car Foot Public transport (a) 143 56 51

South UK 231 123 146 (12 marks)

Test whether the companys suspicions are correct.

A previous survey of general shopping trips had shown that the percentages made by different transport methods were. Car 65% (b) Transport Method (%) Foot Public transport 20% 15%

Test whether the transport pattern for DIY superstores shown in part (a) varies from the general pattern shown in the previous survey. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 3 (a) Null hypothesis: There is no association between region and the form of transport used by its customers to visit the stores. Alternative hypothesis: There is an association between region and the form of transport used by its customers to visit the stores. Degrees of freedom = (3-1) x (3-1) = 4 Critical 2 0.05 significance level = 9.49 (0.01, 13.28) Expected values 131.25 62.50 56.25 Contributions to
2

236.25 112.50 101.25

262.50 125.00 112.50

1.05 0.68 0.49

1.65 0.64 7.88

3.78 0.03 9.98 Chi-squared =26.18

Conclusions: The calculated value of Chi-squared is greater than the critical value of 2 at both the 0.05 and 0.01 levels of significance. Reject the null hypothesis. There is an association between the region and the form of transport used by customers.

(b)

Null hypothesis: The form of transport used has not changed over time. Alternative hypothesis: The form of transport used has changed over time.

Critical value of

, 2 degrees of freedom = 5.990.05 and 9.210.01

Actual 630 Expected 780 Contribution to Chi-squared 28.84615

300 240 15

270 180 45 Chi-squared = 88.85

Conclusions: The calculated value of Chi-squared is greater than the critical Chisquared at the 0.01 level therefore reject the null hypothesis there is very strong evidence that the form of transport has changed over time.

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QUESTION 4 (a) Identify and describe five factors which should be taken into account when designing a consumer price index. (10 marks) The government wishes to increase the indirect taxes on Tobacco and Alcohol drink but does not wish the measure of price inflation to reflect the increase. The current breakdown of the RPI (Retail Price Index) is shown below. Weight 111 47 59 27 254 33 66 64 42 41 133 20 38 65 Index(1987 =100) 188.4 267.7 229.2 381.4 321.0 283.9 160.0 205.3 86.8 223.0 179.7 285.3 84.7 294.3

(b)

Category Food Catering Alcoholic drink Tobacco Housing Fuel and light Household goods Household services Clothing and footwear Personal goods and services Motoring expenditure Fares and other travel costs Leisure goods Leisure services

(Based on the Retail Price Index, Monthly Digest of Statistics, February, 2009 Jan 1987 =100) (i) (ii) Calculate the Retail Price Index including all items (5 marks) By removing the two categories Tobacco and Alcoholic drink, calculate the adjusted value of the index. Explain the reason why the index value has changed as your answer suggests. (5 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 4 (a) Constituents. As the index is representative of all goods and services a sample of items has to be chosen. This raises the issue of how the sample is to be selected. Prices. The same items might have different prices depending on the range of different shops/retail-outlets and different size towns and cities. The problem is how to create a representative price. The selection of items changes as peoples purchasing patterns change e.g. the disappearance of black and white TV, the addition of DVD players Weights. Each item and each group of items has to have a relative importance in the index. This is usually based on the proportion of income spent on the item or group of items in the previous year. The weights are usually up-dated annually. Base year. To avoid exaggeration or diminution of changes in the index the base year has to be chosen so as to minimise these two effects. Type of Index. A large number of different forms of indices can be used. The retail price index is a value index based on changing weights and prices of items which is compared with the base year. Other relevant points can gain credit. (b) (i) Category Food Catering Alcoholic drink Tobacco Housing Fuel and light Household goods Household services Clothing and footwear Personal goods and services Motoring expenditure Fares and other travel costs Leisure goods Leisure services Total Weight 111 47 59 27 254 33 66 64 42 41 133 20 38 65 1000 Index 188.4 267.7 229.2 381.4 321 283.9 160 205.3 86.8 223 179.7 285.3 84.7 294.3 WxI 20912.4 12581.9 13522.8 10297.8 81534 9368.7 10560 13139.2 3645.6 9143 23900.1 5706 3218.6 19129.5 236659.6

RPI =

WI W

236659.6 = 236.7 1000

(ii)

RPI excluding Alcohol and Tobacco W = 1000-86 = 914 WI = (236659.6 (13522.8+10297.8))

WI W

212839 = 232.9 914

The answer is less because the excluded category tobacco has an index value substantially higher than the all items RPI value.

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QUESTION 5 (a) (b) Describe the characteristics of the Normal Distribution. (4 marks)

The weekly demand for a product is normally distributed with mean of 2400 units and standard deviation of 400 units. Calculate the probability that weekly demand is (i) (ii) less than 1800 units between 2200 units and 2800 units. (8 marks)

(c)

Individual units of the product have a mean weight of 250 grams with a standard deviation of 10 grams, the weights are normally distributed. The product is packed in boxes of 12 units. (i) (ii) Calculate the mean weight and standard deviation of the contents of a box of 12 units. (5 marks) What weight should the company quote for the weight of the contents of a box if it wishes it to be exceeded on 99% of occasions? (3 marks) (Total 20 marks)

MODEL ANSWER TO QUESTION 5 (a) The characteristics of the Normal Distribution are: It is symmetrical, bell shaped, the mean median and mode coincide. A standardised normal distribution has a standard deviation with a value of 1. The tails of the distribution never touch the x axis (the distribution is asymptotic to the x axis).

(b

(i)

x x

1800 2400 = -1.5, p = 1-0.933 = 0.067 400

2200 2400 = -0.5, p = 0.692-0.5 = 0.192 400 2800 2400 = 1, p = 0.841-0.5 =0.341 400

(ii)

z1 z2

x x

x x

between 2200 units and 2800 units = 0.192+0.341 =0.533 (c) (i) Mean weight of a box = 12 x 250 = 3000g Standard deviation of a box of 12 = (ii)

12 x 10 2 =

1200 =34.64g

x 2.33 sd = 3000 80.71

= 2919.29g

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QUESTION 6 (a) (b) What is meant by a 95% confidence interval?` (4 marks)

A random sample of 320 postings to the sales ledger by the head office of a company showed 7 errors, whilst a random sample of 400 postings to the sales ledger by the branch office showed 12 errors. Test whether the proportion of errors differs between the head office and the branch office. (12 marks)

(c)

Explain the difference between a type 1 and type 2 error and identify which type might occur in your answer to part (b). (4 marks) (Total 20 marks)

MODEL ANSWER TO QUESTION 6 (a) The 95% confidence interval means that if 100 samples of a given size are taken the population parameter will lie within the stated interval on average 95 of occasions. Null hypothesis: the proportion of errors does not differ between the two offices. Alternative hypothesis: the proportion of errors does differ between the two offices.

(b)

Critical z value 0.05 significance level = 1.96 (0.01, 2.58) p1 = 7/320 = 0.021875, p2 = 12/400 =0.03

n1 p1 n1

n2 p 2 n2

0.021875 320 0.03 400 320 400

19 = 0.02639 720

p1 p1 p

p2 1 n1 1 n2

0.021875 0.03 0.02639 1 0.02639 1 320 1 400

= -0.008125 = -0.68 0.01202 Conclusions: The calculated value of z is less than the critical value of z, There is insufficient evidence to reject the null hypothesis. The proportion of errors does not differ between the two offices. (c) A type one error is the rejection of a true null hypothesis. A type 2 error is the acceptance of false null hypothesis. A type 2 error might have occurred.

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QUESTION 7 A company wishes to sample the opinion of its workforce towards new working practices it is planning to introduce. (a) What is meant by the sampling frame when a sample survey is carried out? Give an example of what might be used as a sampling frame in the situation outlined above. (4 marks) Identify and describe two appropriate methods by which the sample might be taken and state two advantages and two disadvantages of each of the methods you suggest. (12 marks) What sample size is needed to be 95% confident of being within 0.03 of the population proportion when there is no current estimate of the population proportion? (4 marks) (Total 20 marks) MODEL ANSWER TO QUESTION 7 (a) (b) The sampling frame is a list of the total population which is to be surveyed. In this case it will be a list of all the workforce (perhaps using payroll information). A simple random sample whereby all members of the workforce have an equal chance of being chosen. Each member of the work force is allotted a number and a random sample, up to the required size is selected by using random number tables or a random number generator. Advantages The standard error of the sample statistic can be calculated. Each item of the population has an equal chance of being chosen. Disadvantages A sampling frame has to exist (which in this case is possible). The sample drawn may not be representative of the underlying population. A stratified random sample could be used where the workforce is divided into homogeneous sub groups which may be thought to have differing views on the topic. Advantages The results will be more representative of the underlying population. Information will be gained about each of the sub groups Greater precision, the standard error of a stratified random sample is less than that of a simple random sample. Disadvantages A more complex sampling frame is needed. The relevant strata need to be identified. It is more complex and hence expensive than a simple random sample. (Other appropriate methods may be suggested) (c) When there is no current estimate of the population proportion the value of p is taken to be 0.5.

(b)

(c)

The value for z for 95% confidence = 1.96

1.962 0.52 0.032

3.8416 0.25 = 1067.11 (1068 or 1111/1112 if z=2 used) 0.0009

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QUESTION 8 (a) (b) Explain what is meant by the sampling distribution of the mean. (4 marks)

The table below shows the results of two random samples carried out into the level of productivity of a major international manufacturing company, with two plants in the UK and Belgium.

UK Mean productivity (units per shift) Standard Deviation Sample Size 675 56 100

Belgium 702 48 140 (8 marks)

Test whether the sample means differ between the UK and Belgium. (c)

Pool the data for the means and standard deviation and hence estimate the 95% confidence interval for the joint mean. (8 marks) (Total 20 marks)

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MODEL ANSWER TO QUESTION 8 (a) When a number of samples of a given size n are taken from a population with mean, and standard deviation, and the means of the samples calculated, the sample means will be distributed with a standard deviation (standard error)

and mean .

(b)

Null hypothesis: There is no difference in the mean productivity between the UK and Belgium. Alternative hypothesis: There is a difference in the mean productivity between the UK and Belgium. The critical z value = 0.05 significance level =1.96 (0.01, 2,58)

x1 s12 n1

x2
2 s2 n1

675 702 56 2 100 482 140

= -3.9046 Conclusions: The calculated value of z is greater than the critical value of z at both the 0.05 and 0.01 critical values. Reject the null hypothesis, accept the alternative hypothesis that productivity does differ between the UK and Belgium. (c) Pooled mean

n1 x1 n2 x2 n1 n2

675 100 702 140 100 140

= 117780 = 690.75 240 Pooled standard deviation

2 n1 s12 n2 s2 = n1 n2

Sd p =

100 562 140 482 100 140

636160 = 51.48 240

95% confidence interval =

x 1.96

= 690.75

1.96

51.48 240

= 690.75 6.51 = 684.24 to 697.26

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LEVEL 3

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