LCCI International Qualifications

Business Statistics
Level 3

Model Answers
Series 4 2009 Singapore (3709)

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contact us: www.lcci.org.uk
Business Statistics Level 3 (Singapore)
Series 4 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
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3709/4/09/MA Page 1 of 19
QUESTION 1

Stein plc produces sub assemblies for the automotive industry. The company is currently assessing
whether investment in a new tooling machine to replace an existing machine will lead to a significant
increase in output.

To compare the efficiency of the new machine with the one presently in use a random sample of
production employees was selected and each employee used the existing machine on one day and
the new machine on another day.

The machine to be used first was chosen at random for each employee.

The number of items produced over each day was then recorded.

Daily number of items produced

Employee A B C D E F G H I J
Existing machine 18 10 17 27 26 21 28 20 26 23
New machine 20 14 21 25 27 24 31 27 25 29

(a) Why is it important to randomly select the machine to be used first?

(2 marks)

(b) Test whether there is evidence of a significant increase in output from the new machine
compared with the existing machine.
(10 marks)

(c) Suggest one other factor that might have accounted for a difference between the machines.
(2 marks)

(d) Set up a 95% confidence interval for the mean daily output for the new machine.
(6 marks)

(Total 20 marks)

3709/4/09/MA Page 2 of 19
MODEL ANSWER TO QUESTION 1

(a) to remove effects of other factors that may influence the outcome

(b) Null Hypothesis  d = 0

Alternative Hypothesis  d > 0
deg. of freedom (n-1) = 9
critical value, one tail test
5% level 1.83 , 1% level 2.82
_
∑d = 27 d = 2.7

∑d² = 145
___________
st. devn. = √(145-72.9) / 9

= 2.83

t = (2.7 – 0) / (2.83 / √10)

t = 2.7 / 0.895 = 3.017

calc. t is greater than theoretical t at 5% level and at 1% level

Evidence of a significant increase in daily output levels.

(c) learning effect / time spent on existing machine.

(d) mean output 216/10 = 21.6

∑x² = 4948
_____________
s = √ (4948-4665.6) / 9
______
= √ 31.378 = 5.6

confidence interval ( v = 9) : t = 2.26

21.6 ± 2.26 (5.6/√10)

21.6 ± (2.26) (1.771)

21.6 ± 4.00

17.60 - 25.60

3709/4/09/MA Page 3 of 19
QUESTION 2

The following table shows the annual bank service charges applied to a random sample of 150
customer accounts held at a city centre branch.

Annual service charge ($) Number of accounts (f)

0 and less than 100 38

100 and less than 200 54
200 and less than 400 25
400 and less than 600 21
600 and less than 1000 12

For the above data

∑fx = 37 600
and ∑fx² = 16 490 000
(where x represents the class mid-point)

(a) Estimate the mean and the standard deviation for the sample using the summary measures given
above.
(4 marks)

(b) Using your answers from (a) and given that the median value for this distribution is $168.52,
calculate a measure of skewness for the data.
(3 marks)

(c) Sketch a curve to represent this distribution showing clearly on your sketch approximate positions
of the mean, median and mode.
(3 marks)

The bank wishes to conduct a survey of householders in the city to find out how many would consider
applying for a new type of current account with no service charges, provided the account remains in
credit for a minimum of nine months each year.

For the purpose of the survey the city is split into 30 smaller areas.
Within each area there are 45 streets each having approximately 90 householders.

(d) Explain how a sample of 50 householders could be selected using multi-stage sampling.
(4 marks)

(e) Give two advantages and two disadvantages in using this method to select the sample of
householders.
(4 marks)

The survey data will be collected by telephone.

(f) Suggest two reasons why this might be considered an inappropriate method for conducting a
survey of this type.
(2 marks)

(Total 20 marks)

3709/4/09/MA Page 4 of 19
MODEL ANSWER TO QUESTION 2
_
(a) x = 37600/150 = $250.67
_____________________
σ = √ 16490000/150– (250.67)²

_______
= √47097.88

= $217.02

(b) 3(mean – median)

st.devn

3(250.67 – 168.52)
217.02

measure of skew = + 1.136

(c) curve with positive skew

mean > median > mode

(d) number areas and random choice of a small number of areas: number streets within chosen
areas and select streets at random: select 50 householders at random from chosen streets

(e) cost/time, fieldwork concentrated, sample frame only at final stage. Error increases at each level,
sample unrepresentative, complex to organize.

(f) questions likely to be personal, non response/unavailable

3709/4/09/MA Page 5 of 19
QUESTION 3

The weight of a packet of cereal is normally distributed with a mean weight of 450 grams and standard
deviation of 2.5 grams.

(a) Calculate the probability that the actual weight of a cereal packet, selected at random, will be:

(i) less than 446 grams

(ii) more than 456 grams

(iii) between 446 and 452 grams.

(6 marks)

Prior to dispatch, the packets of cereal are put into large boxes each containing a total of 64 packets.

(b) Ignoring the weight of the box, what is the probability that a box chosen at random will weigh
more than 28.85 kg?
(6 marks)

The company is liable to prosecution if 5% or more of the packets of cereal are less than 450 grams in
weight.

(c) What should the mean weight setting be changed to if the percentage underweight is to be less
than:

(i) 5%

(ii) 1%?
(4 marks)

(d) Explain, with reasons, whether the company should use the 5% or the 1% setting.
(4 marks)

(Total 20 marks)

3709/4/09/MA Page 6 of 19
MODEL ANSWER TO QUESTION 3

(a) (i) (446 – 450)

2.5 = -1.6

Prob. 1 - 0.945 = 0.055

(ii) (456 – 450)

2.5 = + 2.4

Prob. = 0.008

(iii) (452 – 450)

2.5 = + 0.8

Prob. = 0.788 - 0.055 = 0.733

(b) (64 x 450) = 28.8kg

_________
σ = √64 x (2.5)²
___
= √400 = 20 grams

Z = 28.85 - 28.80
0.02 = + 2.5

Prob. 1 - 0.994 = 0.006

(c) (i) 450 - mean

2.5 = -1.64(5)

5% setting = 454.1 (25)

(ii) 450 – mean

2.5 = -2.33

1% setting = 455.8(25)

(d) higher risk of prosecution if 5% level used: more waste if 1% setting used

3709/4/09/MA Page 7 of 19
QUESTION 4

(a) In the context of time series analysis, explain the difference between seasonal and cyclical
effects.
(2 marks)

The following data refers to the quarterly number of unemployed (in thousands) in one UK city
between 2006 and 2008.

Number unemployed (thousands)

Year Quarter
1 2 3 4
2006 36 24 25 30
2007 32 22 25 26
2008 28 20 23 16

(b) By calculating a suitable centred moving average, establish the trend for the data.
(6 marks)

(c) Using an additive model, calculate the mean seasonal variations for each quarter.
(4 marks)

(d) Forecast the number unemployed in the city in the first two quarters of 2009.
(4 marks)

Data recently made available showed the actual number unemployed in the city as 28 000 in quarter 1
of 2009 and 20 000 in quarter 2 of 2009.

(e) Give two possible reasons why the forecasts made in (d) proved to be inaccurate.
(4 marks)

(Total 20 marks)

3709/4/09/MA Page 8 of 19
MODEL ANSWER TO QUESTION 4

(a) seasonal: short-term e.g. quarterly

cyclical: long-term oscillations e.g. 7yrs.

(b) Totals Totals Trend Differences

4’s 2’s
36

24
115
25 226 28.25 -3.25
111
30 220 27.5 2.5
109
32 218 27.25 4.75
109
22 214 26.75 -4.75
105
25 206 25.75 -0.75
101
26 200 25 1.0
99
28 196 24.5 3.5
97
20 184 23 -3
87
23

16

(c) differences and table

Q1 Q2 Q3 Q4
-3.25 2.5
4.75 -4.75 -0.75 1.0
3.5 -3

mean 4.125 -3.875 -2 1.75

(d) 5.25/n-1 = 5.25/7 = 0.75 (decrease)

23 - 3(0.75) + 4.125 = 24875

23 - 4(0.75) - 3.875 = 16125

(e) trend may not have continued as before, seasonal factor not constant, random factor may
influence forecasts.

3709/4/09/MA Page 9 of 19
QUESTION 5
(a) Sketch three different control charts for means to illustrate situations where the plotted points
confirm a manufacturing process is out of control.
(6 marks)

A company in its quality control procedures sets the warning limits at 0.025 probability point and the
action limits at 0.001 probability point. This means, for example, that the upper action line is set so
that the probability of the mean length exceeding the line is 0.001.

When it is under control, a process produces components whose lengths are normally distributed with
mean 75cm and standard deviation 1.2cm.

Random samples of 9 components are selected at regular intervals and the mean length of the
sample calculated.

(b) (i) Draw up a control chart to monitor component output.

(7 marks)

The first 10 samples of a day’s output gave the following mean lengths:

75.2 74.6 76 76.4 73.8 75.6 75.4 74.8 75.5 74.4

(ii) Plot these values on your control chart and comment on the stability or otherwise of the
process.
(3 marks)

(c) If the mean length had been set incorrectly at 76cm (the standard deviation remaining at 1.2cm),
and assuming the use of the existing control chart continues, what is the probability of the mean
of a random sample of 9 items exceeding the upper action limit?
(4 marks)

(Total 20 marks)

3709/4/09/MA Page 10 of 19
MODEL ANSWER TO QUESTION 5

(a) sketches: 3 alternatives illustrated

points above warning/action limits,
cluster of points above/below mean line,
trend away from mean line

(b) (i) warning limit

__
75 + 1.96(2) x (1.2/√9 )

75.8 - 74.2
or 75.784 - 74.216

Action limits
__
75 + 3.09(3) (1.2/√9 )

76.2 - 73.8
or 76.236 - 73.764

outline chart, including scaling and clear labels

(ii) plots
early instability but corrected around sample 5

(c) 76.236 - 76
0.4

= 0.59 Prob. = 0.277

or Z = 0.5 Prob. = 0.308

3709/4/09/MA Page 11 of 19
 QUESTION 5(b) Control Chart for Sample Means

77

UAL

76

UWL

75
1 2 3 4 5 6 7 8 9 10

Lengths
LWL
74

LAL

INSTABILITY IN CONTROL

73

3709/4/09/MA Page 12 of 19
QUESTION 6

(a) Explain the difference between a confidence interval estimate and a significance test.
(4 marks)

A company produces a product in four sizes, small, medium, large and extra large.

In the past, the demand for these sizes has been fairly constant at 20% for small, 43% for medium,
25% for large and 12% for extra large.

A random sample of 400 recent sales included 62 small, 176 medium, 109 large and 53 extra large
items.

(b) Test whether there is evidence of a significant change in demand for the different sizes.
(10 marks)

(c) (i) Use the data from the sample to set up a 95% confidence interval for the proportion of all
recent sales that were for small sized items.
(4 marks)

(ii) Compare your answer in (c) (i) with the figure of 20% small item sales based on past
demand patterns.
What does this show?
(2 marks)

(Total 20 marks)

3709/4/09/MA Page 13 of 19
MODEL ANSWER TO QUESTION 6

(a) An interval that specifies the limits within which it is likely that the population value will fall.

A test used to find out if differences between means etc. are

significant or due to random factors

(b) null Hypothesis: no change in the pattern of demand

alternative Hypothesis: there is a change in the pattern of demand

deg. of freedom (n-1) = 3

critical value 5%, 7.81 1% , 11.34

obs. values 62 176 109 53

exp. values 80 172 100 48

contributions
4.05 0.09 0.81 0.52

chi-squared calculated = 5.47

accept Null Hypothesis at both levels; no significant change in

demand pattern

(c) (i) p = 62/400 (1-p) = 338/400

_________________
0.155 + 1.96 √ (0.155) (0.845) / 400

0.155 + 0.0355
= 0.1905 - 0.1195
or 19.05% - 11.95%

(ii) 20% based on past demand for small sizes outside of 95% interval estimate : hence
proportion of small sizes likely to be below the previous 20% figure despite overall no
change in demand

3709/4/09/MA Page 14 of 19
QUESTION 7

The manager of a retail clothing outlet is concerned at the high level of absenteeism recorded by the
10 staff employed in the sales department.
He suggests that the staff absentee rate may be proportional to their length of service with the
company.

Records for last year gave the following information:

Length of service (yrs) Days absent during 2008

Sales staff member
(x) (y)

A 1 7
B 3 9
C 7 8
D 6 12
E 4 10
F 15 5
G 19 4
H 11 0
I 20 1
J 24 4

(a) Calculate the Product Moment Correlation Coefficient for this data and interpret the value
obtained.
(10 marks)

(b) Test whether the correlation coefficient found in (a) is significantly different from zero, given that
the calculated value of t in this case is 2.609.
(5 marks)

(c) The regression line for this data passes through the following pairs of coordinates:
(11, 6) and (18, 3.711)
Use these readings to find the regression equation in the form ŷ = a + bx
(5 marks)

(Total 20 marks)

3709/4/09/MA Page 15 of 19
MODEL ANSWER TO QUESTION 7

(a) ∑x = 110 ∑y = 60
∑x² = 1794 ∑y² = 496
∑xy = 469

formula gives
- 1910/2818.2

- 0.678

some negative correlation

(b) null Hypothesis: r is not significantly different from zero

alternative Hypothesis: r is significantly different from zero
critical value v = 8 5%, 2.31: 1%, 3.36

t = 2.609 (given)

significant correlation at 5% level but not at 1% level

(c) 3.711 - 6 = -2.289

18 – 11 7

b = -0.327
y – 6 = -0.327 (x - 11)
ŷ = -0.327x + 9.597

3709/4/09/MA Page 16 of 19
QUESTION 8

(a) Explain the meaning of the terms:

(i) exhaustive events

(ii) non mutually exclusive events

giving a suitable business example to illustrate each term.

(4 marks)

A survey of travellers using an urban rapid transit system last Monday showed 45% to be male. Of
these males, 15% were over 50 years of age and 35% under 20 years of age.

The corresponding figures for females were 25% and 30%.

Independent of their sex and age, 60% of travellers were visiting the shops and the remainder going to
work.

(b) Construct a suitably labelled diagram or table to show all this information.
(6 marks)

(c) Find the probability that a passenger selected at random from those using the rapid transit
system was:

(i) female, under 20 years of age and travelling to work

(ii) over 50 years of age

(iii) neither female nor between 20 and 50 years of age

(iv) male, given they were over 50 years of age.

(10 marks)

(Total 20 marks)

3709/4/09/MA Page 17 of 19
MODEL ANSWER TO QUESTION 8

(a) (i) list of events covers all possible outcomes e.g. defective and non defective product

(ii) events can occur together e.g. output drops and profit falls

(b) first pair (m, f)

second sets of 3 (<20 20-50 >50)
third set (w or s )
probabilities
labels

(c) (i) 0.55 x 0.3 x 0.4

= 0.066

(ii) (0.45 x 0.15) + (0.55 x 0.25)

= 0.205

(iii) (0.45 x 0.15) + (0.45 x 0.35)

or (0.45 x 0.5)
= 0.225

(iv) (0.45 x 0.15) .

(0.45 x 0.15) + (0.55 x 0.25)

= 0.329(3)

3709/4/09/MA Page 18 of 19
QUESTION 8(b) Tree diagram

3709/4/09/MA Page 19 of 19 © Education Development International plc 2009

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