Statistics & Probability BSAF III-A/III-B/ III-Eve

M. Sohaib Shujaat Department of Management Sciences Course Code: AFMT 241

1. The Dell Computer Company makes its own computers and delivers them directly to customers who order
them via the Internet. Doll competes primarily on price and speed of delivery. To achieve its objective of
speed, Doll makes each of its five most popular computers and transports them to warehouses across the
country. The computers are stored in the warehouses from which it generally takes 1 day to deliver a
computer to the customer. This strategy requires high levels of inventory that add considerably to the cost.
To lower these costs, the operations manager wants to use an inventory model. He notes that both daily
demand and lead time are random variables. He concludes that demand during lead time is normally
distributed, and he needs to know the mean to compute the optimum inventory level. He observes 25 lead
time periods and records the demand during each period. These data are listed here.
Demand during Lead Time
235 374 309 499 253
421 361 514 462 369
394 439 348 344 330
261 374 302 466 535
386 316 296 332 334
a. The manager would like a 95% confidence interval estimate of the mean demand during lead time.
From long experience, the manager knows that the standard deviation is 75 computers.
b. Now the manager would like a 99% confidence interval estimate of the mean demand during lead time.
c. If from long experience, the manager guesses that the mean demand during lead time is 400 computers.
Interpret the solutions in part a and part b, about the manager’s guess.
d. Test the hypothesis that the manager’s guess was correct, against an alternative that the manager’s guess
was above the actual mean demand during lead time. Use the 5% and 1% level of significance. Interpret
and compare your results with the results in part c.

2. a. A candy company fills a 20-ounce package of Halloween candy with individually wrapped pieces of
candy. The number of pieces of candy per package varies because the package is sold by weight. The
company wants to estimate the number of pieces per package. Inspectors randomly sample 120 packages
of this candy and count the number of pieces in each package. They find that the sample mean number of
pieces is 18.72. Assuming a population standard deviation of .8735, what is the point estimate of the
number of pieces per package.
i. Construct a 99% confidence interval to estimate the mean number of pieces per package for the
population assuming that the population of pieces per package is normal.
ii. Construct a 94% confidence interval to estimate the mean number of pieces per package for the
population assuming that the population of pieces per package is non-normal.
b. A monthly income investment scheme exists that promises variable monthly returns. An investor will
invest in it only if they are assured of an average $180 monthly income. The investor has a sample of 300
months’ returns which has a mean of $190 and a standard deviation of $75. Should they invest in this
scheme. Assume that the population of monthly income is normal.
i. Test at 5 % level of significance.
ii. Find 95% confidence interval for average monthly income.
iii. Find 88% confidence interval for average monthly income assuming the population is non-normal.
Statistics & Probability BSAF III-A/III-B/ III-Eve
M. Sohaib Shujaat Department of Management Sciences Course Code: AFMT 241
Max Marks: 100 Assignment # 2

3. a. The following data shows the profits of two companies A & B in 9 different types of business in billions
of dollars.
Company A Profit (billions of dollars) Company B Profit (billions of dollars)
737.1 1185.9
812.0 1326.4
808.1 1434.2
976.4 1549.2
1084.3 1718.0
1204.4 1918.3
1346.5 2163.9
1507.2 2417.8
1667.2 2633.1
A chartered accountant comments that, according to his experience, the populations of profit of companies
A & B, are normally distributed with variances 96.5 and 225 trillions of dollars, square, respectively.
i. Find a 98% confidence interval for the true difference between the profits of companies A & B.
ii. Test the hypothesis, at 5% level of significance, that the true difference between the profits of companies
A & B is at most 700 billion dollars.
b. A manufacturer of a new light bulb would like to demonstrate that his product works twice as fast as
the competitor’s product. The manufacturer would like to test
𝐻0 ∶ 𝜇1 = 0.5𝜇2
𝐻1 ∶ 𝜇1 > 0.5𝜇2
Where µ1 𝑎𝑛𝑑 µ2are the mean life time of the bulbs of manufacture’s product and competitor’s product,
respectively. Assume that both populations are normal with known variances. Develop a procedure for
testing the above hypothesis.

4.. a. The samples taken from Bureau of Labor Statistics shows that the average insurance cost to a company
per hour worked for an employee by major industry group is $3.22 for construction workers and $3.97 for
manufacturing workers. Suppose these figures were obtained from 34 construction workers and 35
manufacturing workers and that their respective standard deviations are $1.38 and $1.51. Assume that
such insurance costs are normally distributed in the population.
i. Calculate a 98% confidence interval to estimate the difference in the mean hourly company expenditures
for insurance for these two groups. What is the value of the point estimate?
ii. Test to determine whether there is a significant difference in the hourly rates employers pay for
insurance between construction workers and manufacturing workers. Use a 2% level of significance.
iii. Also validate your result in part ii using CI in part i.
b. It has been found that 50.3% of U.S. households own stocks and mutual funds. A random sample of
300 heads of households indicated that 171 owned some type of stock.
i. At 1% level of significance would you conclude that this was significant.
ii. Also find 99% confidence interval for the proportion of U.S. households own stocks and mutual funds.
Use 99% confidence interval to validate the result in above part.

5. a, The Bureau of Transportation tracks the flight arrival performances of the 10 biggest airlines in the
Statistics & Probability BSAF III-A/III-B/ III-Eve
M. Sohaib Shujaat Department of Management Sciences Course Code: AFMT 241
Max Marks: 100 Assignment # 2

United States (The Wall Street Journal, March 4, 2003). Flights that arrive within 15 minutes of schedule
are considered on time. Using sample data consistent with Bureau of Transportation statistics reported in
January 2001 and January 2002, consider the following: January 2001 A sample of 924 flights showed
742 on time. January 2002 a sample of 841 flights showed 714 on time. Let 𝑝1 denote the population
proportion of on-time flights in January 2001 and 𝑝2 denote the population proportion of on-time flights
in January 2002. State the hypotheses that could be tested to determine whether the major airlines
improved on-time flight performance during the one-year period. At 𝛼 = 0.05, what is your conclusion.
Also find 97% confidence interval for the difference in proportion of in time flights in 2001 and 2002.
b. The highway department wants to estimate the proportion of vehicles on Interstate 2 between the hours
of midnight and 5:00 a.m. that are 18-wheel tractor trailers. The estimate will be used to determine
highway repair and construction considerations and in highway patrol planning. Suppose analysts for the
highway department counted vehicles at different locations on the interstate for several nights during this
time period. Of the 3481 vehicle counted, 927 were 18-wheelers.
i. Determine the point estimate for the proportion of vehicles traveling Interstate 2 during this time period
that are 18-wheelers.
ii. Construct a 99% confidence interval for the proportion of vehicles on Interstate 2 during this time
period that are 18-wheelers.

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