MOUNT KENYA UNIVERSITY

SCHOOL OF BUSINESS MANAGEMENT

DEPARTMENT OF PROCUREMENT

DIPLOMA IN PROCUREMENT

BUSINESS STATISTICS II

DAF1212

TINGWA YOGO ANDRIA

DBM/2017/69217

SUBMITTED ON TUESDAY, October 22ND, 2019

Question one
a) The table below gives the interest rates of government bonds sold over a period of 12
months.
Month Interest rate (%) per annum
January 11.5
February 11.3
March 11.4
April 11.6
May 11.8
June 11.7
July 11.8
August 12.5
September 12.0
October 11.7
November 11.6
December 11.6
Required:
i) Develop 3-month and 4-month moving averages for this series. (8 marks)

Solution
F= sum of last n demand
n
Month Interest 3month moving average 4 month moving average
rate
January 11.5
February 11.3
March 11.4
April 11.6 11.4
May 11.8 11.43 11.45
June 11.7 11.6 11.525
July 11.8 11.7 11.625
August 12.5 11.76 11.725
 September 12.0 12 11.95
October 11.7 12.1 12
November 11.6 12.06 12
December 11.6 11.76 11.95

Calculation for 3-Moving Average

M4= 11.5 +11.3 +11.4 /3 = 11.4
M5= 11.3 + 11.4 + 11.6/3= 11.43
M6= 11.4+ 11.6 + 11.8/3=11.6
M7=11.6 + 11.8 + 11.7/3= 11.7
M8= 11.8+ 11.7 + 11.8/3= 11.76
M9= 11.7 + 11.8 +12.5/3=12
M10= 11.8 + 12.5 + 12/3=12.1
M11= 12.5 + 12 + 11.7/3=12.06
M12= 12+ 11.7+11.6/3=11.76

Calculation of 4-Moving Average

M5= 11.5+11.3+11.4+11.6/4=11.45
M6= 11.3+11.4+11.6+11.8/4=11.525
M7=11.4+11.6+11.8+11.7/4=11.625
M8=11.6+11.8+11.7+11.8/4=11.725
M9=11.8+11.7+11.8+12.5/4=11.95
M10=11.7+11.8+12.5+12/4=12
M11=11.8+12.5+12+11.7/4=12
M12=12.5+12+11.7+11.6/4=11.95
ii) Which moving average provides better forecast? Why? (2 marks)
4- Moving average. This is because it provides consistence data throughout.

QUESTION TWO
a) A bakery bakes cakes under the brand name “super cakes.” Irene Juma, the manageress does
not know the cost of each cake. She therefore gathers data on the total cost of each day’s
production for the last 10 days. The results are shown in the table below:
Day Number of cakes (‘00’ Total cost (Sh. ‘000’)
units)
1 22.5 23.0
2 21.0 21.6
3 27.5 23.3
4 21.5 24.0
5 30.0 28.2
6 20.0 22.4
7 24.0 23.1
8 26.5 25.3
9 18.3 20.1
10 17.0 16.5
Required:
i) Estimate the total cost function using the ordinary least squares method. State the fixed
cost and unit cost. (11 marks)
Solution

Y = a + bx
X Y Xy X2 Y2
22.5 23.0 517.5 506.25 529
21.0 21.6 453.6 441 466.56
27.5 23.3 640.75 756.25 542.89
21.5 24.0 516 462.25 576
30.0 28.2 846 900 795.24
20.0 22.4 448 400 501.76
24.0 23.1 554.4 576 533.61
26.5 25.3 670.45 702.25 640.09
18.3 20.1 367.83 334.89 404.01
17.0 16.5 280.5 289 272.25
 ∑x=228.3 ∑y=227.5 ∑Xy=5295.03 ∑x2= 5367.89 ∑y2= 53372.41

b = 10 x 5,295.03 – 228.3 x 227.5

10 x 5,367.89 – 228.32
= 1,012.5
1,558.01
= 0.65 (unit cost)
a = 227.5 - 10 x 228.3
10 10
= 20.555(fixed cost)
This means that when output is zero, costs are zero. Sh. 20.555 and that for every one
unit increase in output costs will rise by Sh. 0.65.This assumes Linearity.

ii) If each cake is sold at Sh. 10, determine the break even number of cakes. (3 marks)
Breakeven Point = Fixed Costs/Unit Selling Price – Variable Costs
Fixed costs = 20.555
Unit cost = 0.65
Variable cost = 10
= 20.555/0.65 -10
= 21.62 cakes
b) Two different models are available for the same machine. The production statistics
(number of units produced per hour) of these two models are given below. The data was
collected on different days.
Model A: 180, 176, 184, 181, 190, 137,
Model B: 195, 194, 190, 192, 187, 185, 187,
Will you conclude that Model A and Model B have the same productivity? (6 Marks)
Solution
QUESTION THREE
The table below shows data on the number of visitors (V) to the Kenyan coastline in a month and
the amount of money (M) for each of the 8 months in 2018
Number of visitors 2450 2480 2540 2420 2350 2290 2400 2460
V
 Amount of money 1370 1350 1400 1330 1270 1210 1330 1350
spent M (Sh.’M’)
Required
a) Determine the product moment correlation coefficient between number of visitors and
amount spent. (4Marks)

X y Xy X2 Y2
2450 1370 3,356,500 6,002,500 1,876,900
2480 1350 3,348,000 6,150,400 1,822,500
2540 1400 3,556,000 6,451,600 1,960,000
2420 1330 3,218,600 5,856,400 1,768,900
2350 1270 2,984,500 5,522,500 1,612,900
2290 1210 2,770,900 5,244,100 1,464,100
2400 1330 3,192,000 5,760,000 1,768,900
2460 1350 3,321,000 6,051,600 1,822,500
19,390 10,610 25,747,500 47,039,100 14,096,700

r = 8 x 25,747,500 – 19390 x 10610

√ [8 x 47,039,100 – (19,390)2] [8x 14,096,700- (10,610)2]
= 252,100
262013.457
= 0.96216

b) Give a reason to support fitting a regression model of the form M = a + bv to these data
Positive Correlation- The variables in the data increases and moves to the same direction.

c) Find the value of b (4 Marks)

X Y Xy X2 Y2
2450 1370 3,356,500 6,002,500 1,876,900
2480 1350 3,348,000 6,150,400 1,822,500
2540 1400 3,556,000 6,451,600 1,960,000
2420 1330 3,218,600 5,856,400 1,768,900
2350 1270 2,984,500 5,522,500 1,612,900
2290 1210 2,770,900 5,244,100 1,464,100
2400 1330 3,192,000 5,760,000 1,768,900
2460 1350 3,321,000 6,051,600 1,822,500
19,390 10,610 25,747,500 47,039,100 14,096,700

b = 8 x 25,747,500 – 19390 x 10610

8 x 47,039,100 – (19390)2
= 252,100
340,700
= 0.739947

d) Find the equation of the regression line of m and v (4 Marks)

b = 8 x 25,747,500 – 19390 x 10610
8 x 47,039,100 – (19390)2
= 252,100
340,700
= 0.739947
a = 10,160 – 8 x 19,390 = 8780
8 8
 M = 8,780 + 0.739947v
e) Interpret your value of b (2 marks)
The value of b is greater than zero which means it’s a positive correlation
f) Use your answer to part (d) to estimate the amount of money spent when the number of
visitors to Kenya coastline in a month is 2500. (2 Marks)

= 0.739947(2500)
= 1,849.8675
g) Comment on the reliability of your estimate in part (f). Give a reason for your answer.
(2 Marks)

The reliability of the amount of money used when 2500 visitors visit is slightly higher than the
normal visitation of regular visitors hence this assumes linearity.

REFERENCES

Fleiss, J. L., Levin, B. and Paik, M. C. (2003). Statistical Methods for Rates and Proportions, Third
Edition, John Wiley & Sons, New York.

Agresti, A. and Coull, B. A. (1998). Approximate is better than "exact" for interval estimation of
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Berenson M.L. and Levine D.M. (1996) Basic Business Statistics, Prentice-Hall, Englewood Cliffs,
New Jersey.

Bhattacharyya, G. K., and R. A. Johnson, (1997). Statistical Concepts and Methods, John Wiley and
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Birnbaum, Z. W. (1952). "Numerical tabulation of the distribution of Kolmogorov's statistic for finite
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