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LCCI International Qualifications

Business Statistics
Level 3

Model Answers
Series 3 2009 (3009)

For further Tel. +44 (0) 8707 202909


information Email. enquiries@ediplc.com
contact us: www.lcci.org.uk
Business Statistics Level 3
Series 3 2009

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 2009

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.

Page 1 of 18
QUESTION 1

An engineering company polls its staff to investigate the proportion of them who wish to move to flexible
working arrangements. For the two factories that it operates the results are: Western factory 175 out of
500 staff voted in favour and Northern factory 110 from 300 staff voted in favour.

(a) Test whether there is a significant difference between the Western and Northern factories in the
proportion of workers voting in favour of the flexible working arrangements.
(12 marks)

Nationally, the proportion in favour of flexible working arrangements is 33%.

(b) Test whether the opinions of the engineering company’s employees, when the results of the two
factories have been combined, differ from the national figure.
(8 marks)

(Total 20 marks)

3009/3/09/MA Page 2 of 18
MODEL ANSWER TO QUESTION 1

(a) Null hypothesis: There is no difference in the proportion wanting flexible working hours in
the Western and Northern factories.

Alternative hypothesis: There is a difference in the proportion wanting flexible working hours in
the Western and Northern factories.

Critical z value = ±1.96/2.58

p1 = 175/500 = 0.35, p2 = 110/300 = 0.367

175 + 110 285


Polled value of p = = = 0.356
500 + 300 800

0.35 − 0.367 0.017


z= = = 0.477
 1 1  0.229(0.00533 )
0.356 (1 − 0.356 ) + 
 500 300 

Conclusions: There is insufficient evidence to reject the null hypothesis at the 5%


significance level. There is no difference in the proportion of employees in favour of the
new flexible working arrangements at the two factories.

(b) Null hypothesis: There is no difference between the company proportion and the national
proportion.
Alternative hypothesis: There is a difference between the company proportion and the
national proportion.

Critical z = ±1.96/2.58

p −π 0.356 − 0.33
z= =
π (1 − π ) 0.33(1 − 0.33)
n 800

0.026 0.026
= z= =1.56
0.000276 0.0167

Conclusion: There is insufficient evidence to reject the null hypothesis. There is no difference
between the company proportion and the national proportion.

3009/3/09/MA Page 3 of 18
QUESTION 2

(a) Give two business uses of the normal distribution.


(4 marks)

(b) A factory that manufactures microwave cooker casings has a three stage production process;
cutting, forming and painting. Assume the times for each process are independently normally
distributed as follows:

Cutting: mean time 16 seconds with standard deviation 2 seconds

Forming: mean time 20 seconds with standard deviation 3 seconds

Painting: mean time 40 seconds with standard deviation 5 seconds.

At the painting stage, calculate the proportion of items that:

(i) take more than 48 seconds to produce


(ii) take more than 36 seconds to produce.
(5 marks)

For a complete casing, calculate the proportion of items that are produced:

(iii) in under 60 seconds


(iv) between 70 seconds and 80 seconds.
(11 marks)

(Total 20 marks)

3009/3/09/MA Page 4 of 18
MODEL ANSWER TO QUESTION 2

(a) As the basis for hypothesis testing, quality control or estimation of probabilities of a sales or
product failure.
x−x 48 − 40
(b) (i) More than 48 seconds z= = = 1.6
sd 5

Table probability for z = 1.6: = 0.945

Answer = 1 - 0.945 = 0.055

x−x 36 − 40
(ii) More than 36 seconds z = = = - 0.8
sd 5

Table probability for z = 0.8: = 0.788

(iii) Mean time for complete process


= x 1+ 2+3 = x 1 + x 2 + x 3 = 16 + 20 + 40 = 76

sd1 + sd 2 + sd 3 = 2 +3 +5 = 38 = 6.16
2 2 2 2 2 2
Joint Standard deviation =

Under 60 seconds
x−x 60 − 76 − 16
z= = = = −2.60
sd 6.16 6.16

Table probability = 0.995

Required probability 1 – 0.995 = 0.005

(iv) Between 70 and 80 seconds

x−x 70 − 76 -6
z= = = = −0.97(1.0)
sd 6.16 6.16

Table z = 0.841 required probability = 0.841 – 0.5 = 0.341

x−x 80 − 76 4
z= = = = 0.649(0.65 /0.6)
sd 6.16 6.16

Table z = 0.742 (by interpolation) (0.726) required probability = 0.742 - 0.5


= 0.242 (0.226)

Answer = 0.341 + 0.242 = 0.583 (0.567)

3009/3/09/MA Page 5 of 18
QUESTION 3

A random sample of 12 operatives are tested for speed in completing a simple assembly task and a
comparison is made with their age.

Employee a b c d e f g h i j k l
Age (years) 18 24 17 17 19 21 26 17 18 26 31 29
Speed 9 16 4 3 8 15 19 4 5 17 8 19
(seconds)

(a) Calculate the product-moment correlation coefficient.


(10 marks)

(b) Test whether the correlation coefficient found in part (a) differs significantly from zero.
(6 marks)

(c) Calculate the coefficient of determination and explain what it means.


(4 marks)

(Total 20 marks)

3009/3/09/MA Page 6 of 18
MODEL ANSWER TO QUESTION 3
2 2
(a) Age x Speed y x y xy
18 9 324 81 162
24 16 576 256 384
17 4 289 16 68
17 3 289 9 51
19 8 361 64 152
21 15 441 225 315
26 19 676 361 494
17 4 289 16 68
18 5 324 25 90
26 17 676 289 442
31 8 961 64 248
29 19 841 361 551
263 127 6047 1767 3025
2 2
Σx Σy Σx Σy Σxy

n ∑ xy − (∑ x )(∑ y )
r=
(n∑ x 2
− (∑ x )
2
)(n∑ y 2
− (∑ y )
2
)
12 × 3025 − 263 × 127
r=
(12 × 6047 − 263 )(12 × 1767 − 127 )
2 2

2899
r= = 0.698 (0.7)
3395 x 5075

(b) 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 = 12 - 2 = 10
Critical value of t0.05/0.01 = 2.23/3.17

r n−2 0.698 12 − 2
t= t= = 3.08
2 2
1− r 1 − (0.698)

Conclusions: The calculated value of t is greater than the critical t value at the 5% level, but not at
the 1% level. Reject the null hypothesis. There is some evidence the correlation coefficient
differs from zero.

2 2
(c) Coefficient of determination = r x 100% = 0.698 x 100% = 48.7% (49%)

48.7% (49%) of the change in speed is associated with the change in age (and/or vice versa).

3009/3/09/MA Page 7 of 18
QUESTION 4

(a) When would a paired t test be used instead of an independent two sample mean test?
(4 marks)

Two processes, A and C, are being evaluated. Eight randomly selected members of staff are asked to
produce 80 items by each process and the number of errors is recorded.

Member of staff 1 2 3 4 5 6 7 8
Process A errors 17 15 13 16 18 19 13 18
Process C errors 15 16 14 13 14 12 15 14

(b) Test whether there is a difference in the error rate between the two processes.
(12 marks)

(c) Distinguish between a type 1 and a type 2 error and identify which might have occurred in your
answer to (b).
(4 marks)

(Total 20 marks)

3009/3/09/MA Page 8 of 18
MODEL ANSWER TO QUESTION 4

(a) The paired t test would be used when there is some indication that the same items are being
compared, eg identical twins or the same people are being measured as in before and after tests.

(b) Null Hypothesis: There is no difference in the error rate.


Alternative hypothesis: There is a difference in the error rate.

Degrees of freedom = n - 1 = 8 - 1 = 7

critical t0.05 value = 2.37 (t0.01 = 3.50)

Process
A
Process
B d d
2 (d − d )2

17 15 2 4 0
15 16 -1 1 9
13 14 -1 1 9
16 13 3 9 1
18 14 4 16 4
19 12 7 49 25
13 15 -2 4 16
18 14 4 16 4
16 100 68

∑d 16
d= = =2
n 8

2 2
∑d  ∑d 100
− (2 )
2
sd = −  = = 2.92
n  n  8

d−0 2−0 2
t= = = t= = 1.81
sd n −1 2.92 8 −1 1.1

Conclusion: Accept the null hypothesis, there is no difference in the error rate.

(c) Type 1 error is the probability of rejecting the null hypothesis when it is true.
Type 2 error is the probability of accepting a false null hypothesis.
A Type 2 error may have occurred.

3009/3/09/MA Page 9 of 18
QUESTION 5

(a) When would each of the following models be used to analyse a time series?

(i) Additive model


(ii) Multiplicative model
(4 marks)

The sales in £m of a shoe manufacturer in recent years have been:

Quarter 1 Quarter 2 Quarter 3 Quarter4


2006 147 139 163 152
2007 152 139 174 156
2008 155 143 182 160
2009 162 147

(b) Calculate the centred trend by the method of moving averages and hence the quarterly seasonal
factors.
(12 marks)

(c) Estimate sales for the first quarter of 2010.


(4 marks)

(Total 20 marks)

3009/3/09/MA Page 10 of 18
MODEL ANSWER TO QUESTION 5

(a) The additive model is used when the seasonal variations are independent of the trend and
relatively stable.
The multiplicative model is used when the seasonal variations are proportional to the trend.

(b)
Sales Moving Moving Trend Differences
total 1 total 2
147
139
163 601 1207 150.875 12.125
152 606 1212 151.5 0.5
152 606 1223 152.875 -0.875
139 617 1238 154.75 -15.75
174 621 1245 155.625 18.375
156 624 1252 156.5 -0.5
155 628 1264 158 -3
143 636 1276 159.5 -16.5
182 640 1287 160.875 21.125
160 647 1298 162.25 -2.25
162 651
147

Seasonal 12.125 0.5


differences -0.875 -15.75 18.375 -0.5
-3 -16.5 21.125 -2.25
ASV -1.9375 -16.125 17.20833 -0.75

(c) Quarterly growth T10-T1 = 162.25 – 150.875 = 11.375 = 1.26


n-1 10 -1 9

Trend Estimate = 162.25 + 1.26 x 5 = 162.25 + 6.3 = 168.55


Quarterly Sales = 168.55 – 1.94 = 166.61 or 168.55 – 1.9375 = 166.6125

3009/3/09/MA Page 11 of 18
QUESTION 6

(a) Explain the purposes of calculating a general price index such as the Retail Price Index.
(6 marks)

(b) A general price index number (1985 = 100) stood at 194.7 in 1996 when it was rebased
(1996 = 100). In January 2008, the value of the price index is 152.8 (1996 = 100).

(i) Explain what is meant by ‘the index was rebased’.


(ii) What is the value of the index in January 2008 based on 1985 = 100?
(iii) If a wage of £40,000 is earned in January 2008 what was its value in 1985?
(9 marks)

(c) When a man retired at 60 years of age he drew a pension of £8,460 per annum and a general
price index stood at 162.6 (1990 = 100). Now at the age of 65 his pension will be increased to
take into account general price increases. The general price index now stands at 202.1
(1990 = 100). What will be the value of the increased pension?
(5 marks)

(Total 20 marks)

3009/3/09/MA Page 12 of 18
MODEL ANSWER TO QUESTION 6

(a) The purposes of calculating a general price index such as the Retail Price Index are to calculate
cost of living pay rises, to increase pension payments, to find a rate of inflation and to find ‘real’
income.

(b) (i) Rebasing the index means to create a new starting year for an index. This may involve
recalculating past values of the index which have an earlier base year.

(ii)
1985 100
1996 194.7 100
Jan 2008 152.8
Rebased value 194.7 x 152.8
100
= 297.5
(iii)
wage in Jan 2008 = 40,000

old wage (1985) = 40,000 x 100


297.5
£13,445.38
(c)
old index value = 162.6
current index value = 202.1

Increase in index = 202.1


162.6

1.243

old pension = £8,460

new pension = £8,460 x 1.243

£10,515.17

Alternative answer:

age 60 162.6 8,460

65 202.1 £x

x = 202.1 x 8,460
162.6

£10,515.17

3009/3/09/MA Page 13 of 18
QUESTION 7

A direct sales company records the ages of a random sample of customers against the source of the
advertisement which led to the sale.

Source of Advertisement

Age Radio Television Newspaper Internet Total

Under 30 50 120 30 50 250


30 and under 50 80 135 35 20 270
50 & Over 70 145 35 30 280
Total 200 400 100 100 800

(a) Carry out a suitable statistical test to see if an association exist between age of customers and
the source of the advertisement.
(12 marks)

A previous survey had shown the customers to be derived from the four advertising sources as shown
in the table below:

Radio Television Newspaper Internet

28% 48 % 16% 8%

(b) Has the percentage of customers derived from the different advertising sources changed
significantly?
(8 marks)

(Total 20 marks)

3009/3/09/MA Page 14 of 18
MODEL ANSWER TO QUESTION 7

(a) Null hypothesis: There is no relationship between the age of customer and the source medium.
Alternative hypothesis: There is a relationship between customer age and source medium.

Degree of freedom (R - 1)(C - 1) = (4 - 1)(3 - 1) = 6


Critical χ = 12.59/16.81
2

Medium Radio Television Newspaper Internet Total


Age Under 30 50 120 30 50 250
30 and 80 135 35 20 270
under 50
50 & over 70 145 35 30 280
200 400 100 100 800

expected under 30 62.5 125 31.25 31.25


freq 30< 50 67.5 135 33.75 33.75
50 & over 70 140 35 35

contribution 2.500 0.200 0.050 11.250


to chi
squared 2.315 0.000 0.046 5.602
0.000 0.179 0.000 0.714

Chi squared 22.856

Conclusion: Reject the null hypothesis, there is a strong relationship between age and source medium.

(b) Null hypothesis: There has been no change in the advertising source over time.
Alternative hypothesis: There has been a change in the advertising source over time.

Radio Television Newspaper Internet


28% 48 % 16% 8%

expected 224 384 128 64


observed 200 400 100 100

contribution 2.571 0.667 6.125 20.25

Chi squared 29.61

Degree of freedom (n - 1) = (4 - 1) = 3
Critical χ = 7.81/11.34
2

Conclusion: Reject the null hypothesis, there has been a change in the advertising source.

3009/3/09/MA Page 15 of 18
QUESTION 8

(a) (i) Explain what is meant by simple random sampling. Give one advantage and one
disadvantage of this sampling technique.
(4 marks)

(ii) Explain what is meant by stratified random sampling. Give one advantage and one
disadvantage of this sampling technique.
(4 marks)

A research team have been discussing the relative merits of collecting information from the public by
postal enquiry, face to face interviews, or via the internet.

(b) Explain what is meant by these three terms and give two advantages and two disadvantages for
each collection method.
(12 marks)

(Total 20 marks)

3009/3/09/MA Page 16 of 18
MODEL ANSWER TO QUESTION 8

(a) Simple random sampling


Each item has an equal chance of being chosen. All the population needs to be numbered. A
selection then has to be made using random numbers.

1 advantage: An equal chance of selection. Possible to calculate the standard error.

1 disadvantage: Needs a complete sampling frame. The sample may be geographically dispersed
and therefore costly to investigate.

Stratified random sampling


Divides the population into groups by a common characteristic eg age, gender.
The strata chosen must be relevant to the outcome of the survey. A sample is taken from each
stratum. The sample is more representative of the population.

1 advantage: More representative of the population. Provides information on the individual strata.
Standard error is less than for a random sample.

1 disadvantage: May be difficult to obtain a sampling frame for the strata.


More cost involved because of the need for more information on the strata.

(b) Postal enquiry


The questionnaires are sent by post to all the sample; usually a reply paid envelope is included.
2 advantages from eg Cheapness. No interviewer bias. Can take a large sample. Replies can be
thought about. Can use a random sample.

2 disadvantages from eg Low response rate. No possibility of probing.


Difficult to ask sequential questions. Questions must be kept simple.

Face to face interviews


Use an interviewer to ask the questions on the questionnaire.
2 advantages. High response rate. Interviewer can probe. Questionnaire can be complex. The
interviewer can add observations to the answers.

2 disadvantages: Cost. Interviewer bias. Failure to complete all the interviews. As multistage
design is often used, there is a larger standard error.

Internet surveys

Advantages: Cheap, quick, easy to remail, access to specialist population, advertising medium.

Disadvantages: Difficult to identify the sampling frame, self-selecting sample, internet access can
be limited.

3009/3/09/MA Page 17 of 18
LEVEL 3

3009/3/09/MA Page 18 of 18
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