BUSINESS STATISTICS

UNIT Ist
Statistics is a body of theories and techniques employed in analyzing the numerical information
and using it to make wise decisions.

Elements of Statistics:-

(i) Organization and classification of data:- The collected data must now be edited in
order to correct any inconsistencies, irrelevant answer in the survey or any mistake in
the necessary computations.
(ii) Presentation of data:- The organized data can now be presented in the form of tables
of diagrams. This presentation in an orderly manner facilitates the understanding as
well as the analysis of the data.
(iii) Interpretation of data:- Interpretation means drawing conclusions from the data
which form the basis of decision making. Correct interpretation requires a high
degree of skill and experience and is necessary in order to draw valued conclusions.
(iv) Analysis of data:- The basic purpose of data analysis is to make it useful for certain
conclusions. This analysis may simply be critical observation of data to draw some
conclusions about it or it may involve highly complex and sophisticated mathematical
techniques.

Characteristics of Statistics:-

(i) Statistics are collected for a pre-determined purpose.

(ii) Statistics must be placed in relation to each other.
(iii) Statistics are affected by multiple causes.
(iv) Statistics are aggregates of facts.
(v) Statistics are collected in a systematics manner.
(vi) Statistics are expressed numerically.

Importance and Scope of Statistics:-

(i) Statistics and Planning:- In modern age in which age which is termed as the age of
planning, almost all over the world, governments, particularly of the buding
economics, are resorting to planning for the economic development.
(ii) Statistics And Economics:- Statistical data and techniques of statistical analysis
have proved immensely useful in solving a variety of economics problems, such
wages, prices, analysis of time series and demand analysis.
(iii) Statistics and Business:- Statistics is an indispensable tool of production control
also. Business executives are relying more and more on statistical techniques for
studying the need and the desire of the customer and for much other purpose.
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(iv) Statistics and Industry: - Statistics is very widely used in quality control. In
production engineering, to find whether the product is conforming to specifications or
not, statistical tools.
(v) Statistics and Mathematics: - Statistics and mathematics are very intimately related.
Recent advancements in statistical techniques are outcomes of wide applications of
advance mathematics.
(vi) Statistics And War: - In war, the theory of decision functions can be of great
assistance to military and technical personnel to plan maximum destruction with
minimum effort.

Function of Statistics:-

(i) It facilitates comparison of data.

(ii) It helps in predicting future trends.
(iii) It helps the management in formulating policies.
(iv) It represents the facts in the form of numerical data.
(v) It helps in formulating and testing hypothesis for the purpose of correlation.
(vi) It condenses and summarizes a mass of data into few presentable, understandable and
precise figures.

Limitations of Statistics

(i) Statistics does not study individuals.

(ii) Statistics is not suited to the study of qualitative phenomenon.
(iii) Statistics is liable to be misused.
(iv) Statistical laws are not exact.

Measures of Central Tendency

MEAN MEDIAN MODE

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Mean: - Mean is the amount secured by dividing the sum of values of the items in a series by
their no.

Characteristics:-

(i) This is affected by every value of the series.

(ii) This can be easily computed and is absolute in every condition.
(iii) Its algebraic analysis is possible.

Formula for ungrouped data:- The AM of the set x1 , x2 , x3      xn is given by:-

n
xi
x  i 0 n
This is known as Direct Method.

Short Cut Method:- Steps

(i) Take any value as assumed mean A.

(ii) Find out deviation of each variable form assumed mean.
(iii) Multiply the deviation with respective frequencies (fd).
(iv) Add up the products and use formula.

x  A
 fd
f
Where x mean A= assumed mean N= total frequency d= x-A

Step Deviation Method (Class interval method)

x  A
 fd x
'

X i
f
Where: - x =mean

x A
A= assumed mean d’=deviation =
i

f = total frequency

i =class interval.
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Correct incorrect mean:-

Correct  x = incorrect  x - wrong items + correct items.

Incorrect  x = mean X N (Total frequency).
x
Correct  x = Correct N

Combined Mean:-

x1 N1  x2 N 2  x3 N 3        xn N m
X
N1  N 2  N 3         N m
Where:-

x1 = Mean of IST group N 1 = Total frequency of Ist group

x2 =Mean of 2nd group N 2 = Total frequency of 2nd group

xn = Mean of Nth group N m = Total frequency of Mth group

Merits of AM

(i) It is simple to understand and easy to calculate.

(ii) It is rigidly defined and so its value is always definite.
(iii) Its computation is based on all the observations.
(iv) It is also capable of being handled algebraically.

Demerit of AM

(i) The value of AM is highly affected by extreme value of the variable.

(ii) AM cannot be calculated if even a single observation in the series is missing.
(iii) AM can be a value that does not exist in the series.

Median: - The median is that value of the variable which divides the group into 2 equal parts,
one part comprising all values greater and the other all values lesser than the median.

Merits of Median:-

(i) It is easy to calculate and understand.

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(ii) It is truly defined average as it is the central position of given data.

(iii) It is not affected by extreme observation.
(iv) The value of median can also be located graphically.
(v) Median is especially useful in the case of open end distribution.

Demerits of Median

(i) Its determined is not based on all the observation.

(ii) It is not capable of further algebraic treatment.
(iii) Its value is affected by the fluctuation of sampling

Median (ungrouped data):- It total no. of observation is N then:-

 N  1
th

If N is odd: Size of  observation.

 2 

If N is Even:-

1  N  2 
th th
N
Me  size of   observation  size of   observation
2  2  2  

For Grouped Data: - Step 1:- Find out the median by using N/2.

Step2:- Find out the class in which median lies.

Step3:- Apply the formula:

N 
 2  C.F 
Me  L   X i
 f 
 

Where L= lower limit of median class.

f= Frequency of the median class.
C.F= cumulative frequency of the class preceding median class.
i= class interval of the median class.

Quartiles: Three points on the scale of observations which divide the total frequency into four
equal parts are called quartiles.

Computation of quartile in Individual series Discrete series: -

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 N  1
th

First Quartile, Q1   observation

 4 

 3( N  1) 
th

Third Quartile Q3   observation

 4 

Computation of quartile in Continuous series: -

N 
 4  C .F 
First Quartile Q1  L1   X i
 f 
 

 3N 
 4  C.F 
Third Quartile Q3  L1   X i
 f 
 

DECILES

The nine points on the scale of observations divide the total frequency into ten equal parts
are called decile.

Computation of Decile in Individual series Discrete series: -

 ( N  1)   2( N  1)   3( N  1) 
th th th

D1    observation , D2    observation , D3   observation

 10   10   10 
………and so on till D9

 9( N  1) 
th

D9   observation
 10 

Computation of Decile in Continuous series: -

N   2N   3N 
 10  C.F   10  C.F   10  C.F 
D1  L1    X i , D2  L1    X i , D3  L1   X i
 f   f   f 
     
……..and so on till D9
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 9N 
 10  C.F 
D9  L1   X i
 f 
 

Percentile: The ninety nine points on the scale of observations which divide the total
frequency into hundred equal parts are called percentiles.

Computation of Percentile in Individual series Discrete series: -

 ( N  1)  10( N  1)   36( N  1) 
th th th

P1    observation , P10    observation , D36   observation

 100   100   100 
,……..and so on till P99

 99( N  1) 
th

P99    observation
 10

Computation of Percentile in Continuous series: -

 N   10 N 
 100  C.F   100  C.F 
P1  L1    X i , P10  L1   X i,
 f   f 
   
 36 N 
 100  C.F 
P36  L1    X i …..and so on till P99
 f 
 

 99 N 
 100  C.F 
P99  L1   X i
 f 
 

MODE:- The value of the variable which occurs most frequently in a distribution is called the
mode.

Merits:-

(i) Easy to understand as well as calculate.

(ii) It is usually an actual value as it occurs most frequently in series.
(iii) It is not affected by extreme value as in the average.
(iv) It is simple and precise.
(v) It is most representative average.
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Demerits:-

(i) It is not suitable for further mathematical treatment.

(ii) It may not give weight to extreme items.
(iii) It is stable only when the sample is large.
(iv) Mode is influenced by magnitude of the class interval.

Grouped Data: - Step 1:- Determine the model class which as the max frequency.

Step 2:- By interpolation the value of the mode can be calculated as:-

 f f 
Mo  L1   1 0  (l2  l1 )
 2 f1  fo  f 2 
Where L1= lower limit of modal class.

L2= upper limit of the modal class.

f1 = frequency of the modal class.

f0 = frequency of the class proceeding to the modal class.

f2 = frequency of the class succeeding the modal class.

Relation in between Mean, median and mode

i. Mode = 3 median -2mean

Median = mode + mean  mod e 
2
ii.
3
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Range
It is defined as the difference between 2 extreme observations of the distribution.

Range = Xmax -Xmin

R=L–S

LS
Coefficient =
LS

Merits of Range:-

(i) Simplest: - Range is simplest to understand and easiest to compute.

(ii) Rigidly defined:- It is rigidly defined.
(iii) Broad picture of Data:- Range gives a board picture of the data in which it includes
the limits within all of the items occur.

Demerits of Range:-

(i) Not based on all items.

(ii) Unstable measurement.
(iii) Problem in open end classes.
(iv) Not suitable in frequency distribution.
(v) No knowledge about formation of series.

Quartile Deviation: -

Q3  Q1
QD=
2
Q3  Q1
Coefficient =
Q3  Q1
Merit of Quartile Deviation: -

1. It is easy to calculate and simple to understand.

2. It is rigidly defined.
3. It gives an idea about the variation of central 50% of the observations.
4. It can be calculated in case of open end classes.
5. It is not unduly affected by extreme values.

Demerits: -
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1. It is not based on all the observations.

2. It is not capable of further algebraic treatment.
3. It is necessary to arrange the data in ascending or descending order.
4. It does not take account of the shape of the data below the first quartile and above the
third quartile and the portion between first and third quartiles.
5. It is much affected by fluctuation of sampling.

Uses: -

1. When the median is the measure of central tendency, then it may be used as a measure
of dispersion.
2. QD is also useful when there is a great difference between extreme values.
3. QD is used as an absolute measure of dispersion when the concentration around the
median, the middle 50% of the cases, is of primary interest.

Mean Deviation: - Mean Deviation is also known as average deviation. Deviation of a series is
the arithmetic average of the deviations of various items from a measure of central tendency.

Merits of Mean Deviation:-

(i) Easy to calculate.

(ii) Based on all values.
(iii) Less affected by extreme values.
(iv) Better measure for comparison.

Demerits of Mean Deviation:-

(i) Ignoring algebraic signs.

(ii) Uncertain & incomparable.
(iii) Increase with the size of sampling.
(iv) Problem in open-end classes.

Formula: - In case of Mean:-

For ungrouped Data:- MD 

 xx
n

For grouped Data:- MD 

 f xx
f
In case of Median:-
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For ungrouped Data:- MD 

 x  Me
n

For grouped Data:- MD  

f x  Me
f
In case of Mode:-

For ungrouped Data:- MD 

 x  Mo
n

For grouped Data:- MD  

f x  Mo
f
Coefficient of Mean Deviation for Mean:-

(i) Coefficient of Mean Deviation in case of mean:-

M .D
Coff 
X
(ii) Coefficient of Mean Deviation in case of median:-
M .D
Coff 
Me
(iii) Coefficient of Mean Deviation in case of mode:-
M .D
Coff 
Mo

Variance: - The term variance was used to describe the square root of the standard deviation.

 x  x 
2

Variance 
n

Standard Deviation: - It is the square root of the arithmetic mean of the square deviations of
various values forms their arithmetic mean.

 x  x 
2

Ungrouped Data:- S .D 
n
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  
2
f xx
S .D 
Grouped Data:
f
Merits:-

(i) It is rigidly defined and based on all observation.

(ii) It is amenable to further algebraic treatment.
(iii) It is not affected by sampling fluctuations.
(iv) It is less erratic.

Demerits:-

(i) It is difficult to understand and calculate.

(ii) It gives greater weight to extreme values.

Coefficient of Variance: - It is also known as coff. of S.D.

x
Coff  X 100
X
Short –Cut formula of standard deviation: - Ungrouped Data

 x2 2
x    X   
 n 

  fx 2 2

Grouped Data:-
x  
  f
 X 

 

Short Cut Method:- In case of Assumed Mean

 fd 2    fd  

2

   
  f    f  
S.D =
 
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Step Deviation Formula:-

 fd ' 2   fd '  2 
    i
  f    f  
  
S.D =
 

Combined Standard Deviation:-

 n1 ( 1 2  d1 2 )  n2 ( 2 2  d 2 2 ) 
  
 n 1  n 2 


Where: - d1= x1  combined mean  
d2= x2  combined Mean 
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SKEWNESS
A distribution in which mean, median and mode do not overlap is said to be asymmetrical or
skewed. If a distribution is said to be symmetrical if mean, median and mode are identical.

Symmetrical Distribution:-

x =Me=Mo

Types of Skewness: - There are 2 types of Skewness:-

Positively Skewed Negatively Skewed

Positively Skewed Distribution: - A distribution in which Mean is maximum and mode is

minimum and median lies in between the 2 is called a positive skewed distribution. This can also
be explaining in terms of graph. x > Me >Mo

Mode Median Mean

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Negatively Skewed Distribution:- A distribution in which the value of mode is max and that of
mean is least, median lies between the 2 is called negatively skewed distribution. x < Me <Mo.

Mean Median Mode

Methods of measures of Skewness:- According to Karl Pearson for Skewness of a series, the
difference the mean and mode only should be found out because mean is an average which is
most affected by extreme value of series and mode is an average which is least affected by the
extreme value of a series. Thus:-

S k ( P)  Mean  Mode

When it has different value, then:-

Sk (P) = 3[Mean- Median]

Coefficient of Skewness:-

Mean  Mode
(i) Coefficient of Skewness =
S tan dard Deviation
3( Mean  Median)
(ii) Coefficient of Skewness =
S tan dard Deviation
Note: - The coefficient of Skewness is always within ±1,

If J=0, then is no Skewness.

(i) If J is positive then Skewness is positive.

(ii) If J is negative then Skewness is negative.
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Bowley’s Coefficient of Skewness: -

Q3  Q1  2M e
JQ 
Q3  Q1
Note: - The coefficient of Skewness is always within ±1

Kelley’s Coefficient of Skewness: -

D9  D1  2M e
JD 
D9  D1
OR
P  P  2M e
J P  90 10
P90  P10

Kurtosis
“Kurtosis measures the flatness of the curve”

(I) If the curve is peaked like a normal curve it is called Mesokurtic.

(II) If the curve of a distribution is more peaked than normal curve it is called leptokurtic.
(III) If the curve has flat-top than normal curve it is called platykurtic.

Measures of Kurtosis: - Kurtosis is measured using the fourth moment. The relative measure of
kurtosis is defined as:-
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4
2 
22
If  2 =3 then the curve is normal or Mesokurtic.

If  2 > 3 then the curve is leptokurtic.

If  2 < 3 then the curve is platykurtic

Kurtosis can be measures by  2 coefficient:-

 2  2  3

If  2 =0 then the curve is normal or Mesokurtic.

If  2 >0 then the curve is leptokurtic.

If  2 <0 then the curve is platykurtic.

Moments: - The arithmetic mean of various powers of deviations taken in any distribution form mean.

Moment about the mean

In case of Individuals Series In case of Frequency Distribution

1 
 ( x  x) 1 
 f ( x  x)
N N
 ( x  x)  f ( x  x)
2 2

2  2 
N N

3 
 ( x  x) 3

3 
 f ( x  x) 3

N N
 ( x  x)  f ( x  x)
4 4

4  4 
N N

Moment about the Arbitrary Value

In case of Assumed Mean In case of Frequency Distribution

 '1 
 ( x  A)  '1 
 f ( x  A)
N f

2'

 ( x  A) 2

2'

 f ( x  A) 2

N f
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 '3 
 ( x  A) 3

3'

 f ( x  A) 3

N f

4'

 ( x  A) 4

4'

 f ( x  A) 4

N f

In case of Continuous Series

1'

 fd '

Xi
f

2'

 fd '2

X i2
f

3'

 fd '3

X i3
f

4'

 fd '4

X i4
f

Relation between moments about mean in term of moments about arbitrary value:-

1  1'  1'  0

2  2 '  1'   2

3  3'  31'  2 '  2 1'  3

 6    
' 2 ' 4
 4   4 '  43' 1' 1 2
'
 3 1