Model Answers

Series 2 2010 (3009)

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LCCI International Qualifications
Business Statistics
Level 3
Page 1 of 18
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) Questions reproduced from the printed examination paper

(2) Model Answers 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)

(3) Helpful Hints where appropriate, additional guidance relating to individual
questions or to examination technique

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

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3009/2/10/MA Page 2 of 18
QUESTION 1

(a) Describe the characteristics of the normal distribution.
(4 marks)

A company employs a maintenance team to repair its machines. The time taken to repair a machine
follows a normal distribution with a mean time of 45 minutes and a standard deviation of 15 minutes.
Whilst the machine is not working it is taken out of service.

(b) Calculate the probability that the time taken to repair a machine is:

(i) less than 27 minutes
(ii) between 27 minutes and 39 minutes.
(6 marks)

(c) The maintenance team wish to establish a benchmark time within which they can guarantee
a 95% completion rate. What is that benchmark time?
(4 marks)

On some occasions when a machine needs repairing a member of the maintenance team is not
available. The mean time taken for a member of the maintenance team to become available is
15 minutes with a standard deviation of 5 minutes. The time taken for a member of the
maintenance team to become available is normally distributed.

(d) If a member of the maintenance team has to become available, what is the probability
that finding a member of the maintenance team and completing the repair takes more
than 45 minutes?
(6 marks)

(Total 20 marks)





3009/2/10/MA Page 3 of 18
MODEL ANSWER TO QUESTION 1

(a) Symmetrical bell shaped curve, asymptotic to the x axis, mean, median
and mode are equal.

(b)
sd
x
z
15
45 27
z
=
15
-18
= -1.2

Proportion = 0.885 Answer =1-0.885 = 0.115


sd
x
z
15
45 39
z

15
6 -
-0.4

Proportion = 0.655
Therefore between 27 minutes and 39 minutes

= 0.885 - 0.655 = 0.23


(c) 95% or 0.95 gives z = +1.65

+
sd
x
1.65
15
45 x


+1.65 x 15 = x - 45

x = +24.75 + 45 = 69.75 (70) minutes


(d) Joint mean 1 x + 2 x = 45 + 15 = 60

Joint standard deviation =
2
2
2
1
sd sd

=
2 2
5 15 = 250 = 15.81


sd
x
z
15.81
60 45
z

15.81
15
-0.95

Proportion by interpolation = 0.829 (Accept 0.816 or 0.841)

3009/2/10/MA Page 4 of 18
QUESTION 2

(a) Explain what the correlation coefficient measures.
(3 marks)

The table below shows the length of service and salaries for a random sample of 10 workers.


Worker Service
(years)
Salary 000
a 12 25.3
b 23 36.3
c 17 14.9
d 19 25.2
e 8 17.5
f 16 25.2
g 7 22.5
h 4 14.9
i 22 28.5
j 19 26.9


(b) Calculate the product-moment correlation coefficient and comment on your answer.
(11 marks)

(c) Test whether the correlation coefficient differs significantly from zero.
(6 marks)

(Total 20 marks)
3009/2/10/MA Page 5 of 18
MODEL ANSWER TO QUESTION 2

(a) The correlation coefficient measures the linear association between two variables
on a scale from 1 to +1 indicating perfect association. A value of zero
indicates no association.

(b) x y x
2
y
2
xy
12 25.3 144 640.09 303.6
23 36.3 529 1317.69 834.9
17 14.9 289 222.01 253.3
19 25.2 361 635.04 478.8
8 17.5 64 306.25 140.0
16 25.2 256 635.04 403.2
7 22.5 49 506.25 157.5
4 14.9 16 222.01 59.6
22 28.5 484 812.25 627.0
19 26.9 361 723.61 511.1
147 237.2 2553 6020.24 3769
x y x
2
y
2
xy


2
2
2
2
y y n x x n
y x xy n
r



2 2
237.2 10x6020.24 147 10x2553
147x237.2 10x3769
r



56263.84 60202.4 21609 25530
34868.4 37690
r

56 3921x3938.
2821.6


r= 0.718
There is positive linear relationship between the variables.

(c) Null Hypothesis: the correlation coefficient does not differ from zero.
Alternative Hypothesis: the correlation coefficient does differ from zero.

Critical t value, 8 degrees of freedom = 2.31/3.36


2
r 1
2 n r
t

2
0.718 1
2 10 0.718
t


0.5155 1
2.031
t


0.696
2.031


2.92

Conclusion: The calculated value of t is more than the critical 5% t value therefore
reject the null hypothesis the correlation coefficient does differ from zero. But is
less than the critical 1% t value therefore do not reject the null hypothesis the
correlation coefficient does not differ from zero.
3009/2/10/MA Page 6 of 18
QUESTION 3

(a) State the four components of a time series decomposition.
(4 marks)

The table below shows the quarterly export figures for a country in billions.


Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
2007 25 35 48 51
2008 30 48 61 68
2009 41 57 70 83


(b) Calculate the centred moving average for the quarterly exports and estimate the average
seasonal variations.
(10 marks)

(c) Forecast the level of exports for the first quarter of 2010 and comment on the likely accuracy
of your answer.
(6 marks)

(Total 20 marks)





3009/2/10/MA Page 7 of 18
MODEL ANSWER TO QUESTION 3

(a) The four components are the long term trend, the cyclical movement, the
seasonal variation and the residual or random element.


(b)

Exports B M Total M Avg 1 M Avg 2 Diffferences
or Trend
25
35
48 159 39.75 40.375 7.625
51 164 41 42.625 8.375
30 177 44.25 45.875 -15.875
48 190 47.5 49.625 -1.625
61 207 51.75 53.125 7.875
68 218 54.5 55.625 12.375
41 227 56.75 57.875 -16.875
57 236 59 60.875 -3.875
70 251 62.75
83
1m 1cao 1m 1ft 1m 1ft 1m 1ft

Qtr1 Qtr 2 Qtr 3 Qtr 4
-15.875 -1.625 7.625 8.375
-16.875 -3.875 7.875 12.375
Average
seasonal variation
-16.375 -2.75 7.75 10.375

(c) Quarterly growth rate = Last trend First Trend
Number of trend values-1

60.875-40.375
8-1



Forecast Quarter 1 = (60.875 + 2.929 x 3) -16.375 = 53.287 B
The forecast should be fairly accurate as the data is reasonably stable
and the length of forecast is not too great.



=2.929
3009/2/10/MA Page 8 of 18
QUESTION 4

An estate agent took a random sample of house buyers to find out if there was a relationship
between age of buyer and house value.


AGE
House Value Under 30 30 and under 50 50 and over
Under 150,000 37 42 31
150,000 and under
250,000
102 103 45
250,000 and over 42 48 50

(a) Test to see if there is an association between age of buyer and house value.
(12 marks)

(b) By combining the data for age, test to see if the proportion of houses values at 250,000 and
over sold by the estate agent differs significantly from the national proportion of 0.31.
(8 marks)

(Total 20 marks)


3009/2/10/MA Page 9 of 18
MODEL ANSWER TO QUESTION 4

(a) Null hypothesis: there is no association between the value of the house
and age of buyer.
Alternative hypothesis: there is association between the value of
the house and age of buyer.

Degrees of freedom = (3 - 1)(3 - 1) = 4
Critical
2
0.05/0.01 = 9.49/13.28

Observed 37 42 31 110
102 103 45 250
42 48 50 140
181 193 126 500

Expected 39.82 42.46 27.72 110
90.50 96.50 63.00 250
50.68 54.04 35.28 140
181 193 126

Contributions 0.1997 0.0050 0.3881
To Chi-squared 1.4613 0.4378 5.1429
1.4866 0.6751 6.1417
Chi- Squared = 15.9382

Conclusions: The value of
2
is greater than the critical value the difference is
highly significant reject the null hypothesis. There is a highly significant
association between the value of the house and age of buyer.

(b) Null hypothesis: there is no significant difference between the national
proportion of people buying houses 250,000 and over and the estate agents
sales proportion.

Alternative hypothesis: there is a significant difference between the national
proportion of people buying houses 250,000 and over and the estate agents
sales proportion.

Critical z 0.05 = 1.96


n
) (1
p
z
500
0.31) 0.31(1
0.31 0.28




0.0004278
0.03
z = -1.45

Conclusion: As the calculated value of z is less than the critical value of z do not
reject the null hypothesis. There is no significant difference between the national
proportion of people buying houses 250,000 and over and the estate agents sales
proportion..
3009/2/10/MA Page 10 of 18
QUESTION 5

(a) Explain the meaning of the term the sampling distribution of the mean and illustrate the
difference in application when there are large and small sample sizes.
(6 marks)

Random samples were taken of the price of two bedroom apartments in towns X and Y.

Town X
(000)
Town Y
(000)
249 289
255 257
241 242
265 228
289 255
235 269
249 275
287 276
246 294
253

(b) Test to discover whether the price of two bedroom apartments is significantly cheaper in
town X than town Y.
(14 marks)

(Total 20 marks)


3009/2/10/MA Page 11 of 18
MODEL ANSWER TO QUESTION 5

(a) As samples of a given size are taken the mean values will vary, the distribution
of the mean values is referred to as the sampling distribution of the mean. When
the sample size is large, 30 or greater, the sampling distribution is normally
distributed with the mean of the sample means equal to the population mean.
When the sample size is small (less than 30) and the data is normally distributed,
the sampling distribution follows the t distribution. The standard error = n

(b) Null Hypothesis: The price of a two bedroomed apartment in town X is not
significantly cheaper than the price of a two bedroomed apartment in town Y.

Alternate Hypothesis: The price of a two bedroomed apartment in town X is significantly
cheaper than the price of a two bedroomed apartment in town Y.

Degrees of freedom = n +m 2 = 10+9-2 =17
Critical t = 1.74/2.57

x y
2
) x (x

2
) y (y
x
2
y
2

249 289
62.41 576 62001 83521
255 257
3.61 64 65025 66049
241 242
252.81 529 58081 58564
265 228
65.61 1369 70225 51984
289 255
1030.41 100 83521 65025
235 269
479.61 16 55225 72361
249 275
62.41 100 62001 75625
287 276
906.01 121 82369 76176
246 294
118.81 841 60516 86436
253
15.21 64009
2569 2385
2996.9 3716
662973 635741
x y
2
) x (x

2
) y (y
x
2
y
2


256.9
10
1569
x

265
9
1485
y



Pooled
2 m n
) y (y ) x (x
sd
2 2
=
2 9 1
3716 2996.9
0

17
6712.9
= 19.87



m
1
n
1
s
y x
t

9
1
10
1
19.87
265 256.9
t


9.12
8.1
t
= -0.887

Conclusion: The calculated value is less than the critical value, so there is insufficient
evidence to reject the null hypothesis. The price of a two bedroomed apartment in town
X is not significantly cheaper than the price of a two bedroomed apartment in town Y.
3009/2/10/MA Page 12 of 18
QUESTION 6

(a) Explain the benefits to a business of using a quality control system?
(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 product is set
at 1750 grammes with a standard deviation of 50 grammes. Samples of 9 items at a time are taken
from a production line to check the accuracy of the manufacturing process.

(b) (i) Draw a control chart to monitor the process.
(8 marks)
(ii) The first 7 samples taken had the following mean weights (in grammes):

Weight in
grammes
1776 1810 1785 1760 1780 1732 1730


Plot these data on your control chart and comment appropriately.
(4 marks)
(iii) If the sample mean had been wrongly set at 1730 grammes, assuming the standard
deviation remains the same and the sample size is 9, what is the probability that
a sample mean lies outside the lower warning limit?
(4 marks)

(Total 20 marks)


3009/2/10/MA Page 13 of 18
MODEL ANSWER TO QUESTION 6

(a) The most important benefit to a business of a good quality control system
is the better reputation it will have with its customers.
It allows the company to detect faults in a system quickly and be able to rectify
them .This should reduce waste and cut costs.It should ensure that the output is of good
quality.

(b)
Warning limits =
n

1.96 x
9
50
1.96 1750

Warning limits = 1750 32.67 (33.33 if z = 2 used)

1717.33 and 1782.67 (1716.67 to 1783.33)

Action limits =
n

3.09 x .
9
50
3.09 1750

Action limits = 1750 51.5

1698.5 to 1801.5

1680
1700
1720
1740
1760
1780
1800
1820
1 2 3 4 5 6 7
Sample number



(c) The lower warning limit is 1717.33

n

x
z
9
50
1730 1717.33
z = -0.76

using z = 0.7 probability = 1-0.758 = 0.242,
using z = 0.8 probability = 1-0.788 = 0.212

UAL

UWL


MEAN


LWL

LAL
G
r
a
m
m
e
s

3009/2/10/MA Page 14 of 18
QUESTION 7

(a) Explain the difference between a Type 1 and Type 2 error.
(4 marks)

The records of a company contain the following data on order value for the two months of
October and November:

November October
Mean value per order 1035 1061
Standard deviation 37 29
Sample size 57 49

(b) Has there been a significant change in the mean value per order between the two months?
(8 marks)

(c) Pool the data for the two months to give a best estimate of the mean value per order and
the standard deviation. Using these data estimate a 90% confidence interval for the mean
value per order.
(8 marks)

(Total 20 marks)
3009/2/10/MA Page 15 of 18

MODEL ANSWER TO QUESTION 7

(a) A type 1 error is the probability of rejecting the null hypothesis when it is true.
A type 2 error is accepting the null hypothesis when it is false.

(b) Null hypothesis: there is no significance difference in the mean order
value between November and October.

Alternative hypothesis: there is a significance difference in the mean order
value between November and October.

Critical z value = 1.96 , 2.58


2
2
2
1
2
1
2 1
n
s
n
s
x x
z
49
29
57
37
1061 1035
z
2 2




17.16 24.02
26
z =
41.18
26
=
6.42
26


z = 4.05

Conclusion: there is sufficient evidence to reject the null hypothesis at the
5% and 1% levels. The mean value of orders between November and October
has changed.

(c) Joint mean = 2
2
1
1
x n x n = 57 x 1035 + 49 x 1061 = 110984 = 1047.02
106 106
Joint Standard Deviation =
2 1
2
2 2
2
1 1
n n
sd n sd n
=
49 57
29 49 37 57
2 2



106
119242
= 1124.92 = 33.54

z value for 90% significance level = 1.64

ci
n

1.64 x ci
106
33.54
1.64 1047.02

= 1047.02 5.34 = 1041.7 to 1052.4


3009/2/10/MA Page 16 of 18
QUESTION 8

(a) Explain what is meant by and give a business example of:

(i) Independent events
(ii) Conditional probability
(4 marks)

A company is considering the launch of a new product. If market conditions are good the probability of
a successful launch is 65%, if market conditions are poor the probability of a successful launch is
35%.The probability of good market conditions is 70%.

(b) Find the probability that the launch is successful.
(5 marks)

(c) If the product launch was unsuccessful what is the probability that the market conditions
were poor.
(5 marks)

The company wished to investigate the views of its customers regarding the new product using a
Quota Sample.

(d) (i) Explain how a Quota Sample can be carried out.
(ii) Give one advantage and one disadvantage of using this method of sampling.
(iii) Suggest two criteria that might be applied in selecting respondents.
(6 marks)

(Total 20 marks)



3009/2/09/MA Page 17 of 18
MODEL ANSWER TO QUESTION 8

(a) (i) Independent events are where the occurrence of one event does
not affect the probability of a second event e.g. a rise in costs and an increase
in demand.

(ii) Conditional probability is the probability that one event
occurs given another event has occurred e.g. given a customer buys a product
today, what is the probability they saw last nights TV advertisement.


(b) Probability good market conditions and successful = 0.7 x 0.65 = 0.455
Probability bad market conditions and successful = 0.3 x 0.35 = 0.105
0.560


(c) Probability launch unsuccessful = 1 - 0.56 = 0.44

Probability unsuccessful and bad market conditions = 0.3 x 0.65 = 0.195

Probability launch unsuccessful and bad market conditions = 0.195 = 0.443
Probability launch unsuccessful 0.44


(d) (i) A Quota Sample is based on controls for the type of customer selected. The
selection is non-random.

(ii) A sampling frame is not needed, it is relatively cheap, not possible to calculate the
sampling error.

(iii) Criteria that may be applied: size of order, geographical location, length of time the
purchaser has been a customer, type of products bought, gender or age.

3009/2/09/MA Page 18 of 18 Education Development International plc 2010
LEVEL 3


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