ConfidenceInterval Estimation

USINGSTAilSTICS@ SaxonHome Improvement

8.1 CONFIDENCEINTERVALESTIMATION 8.7 G)(CD-ROMTOPiC)ESTTMATTON

FORTHE MEAN (o KNOWN) AND SAMPLESIZEDETERMINATION
8.2 CONFIDENCE
INTERVALESTIMATION FORFINITEPOPULATIONS
t
t FORTHE MEAN (o UNKNOWN) EXCELCOMPANIONTO CHAPTER8
, Student's
r Distribution E8.l Computing
theConfidence
IntervalEstimate
tr
Properties
of theI Distribution for the Mean (o Known)
I
TheConcept ofDegrees ofFreedom 88.2 Computingthe ConfidenceIntervalEstimate
TheConfidence IntervalStatement for the Mean (o Unknown)
8.3 CONFIDENCEINTERVALESTIMATION E8.3 Computingthe ConfidenceIntervalEstimate
FORTHE PROPORTION for the Proportion
E8.4 Computingthe SampleSizeNeeded
8.4 DETERMINING SAMPLESIZE for Estimatingthe Mean
Sample
SizeDetermination
for theMean E8.5 Computingthe SampleSizeNeeded
Sample
SizeDetermination
for theProportion for Estimatingthe Proportion
8.5 APPLICATIONS OF CONFIDENCE E8.6 Computingthe ConfidenceIntervalEstimate
INTERVALESTIMATION IN AUDITING for the PopulationTotal
Estimating
thePopulation
TotalAmount E8.7 Computingthe ConfidenceIntervalEstimate
Difference
Estimation for the Total Difference
One-SidedConfidenceIntervalEstimationof the E8.8 ComputingFinitePopulationCorrection
Rateof Noncompliancewith InternalControls Factors

8.6 CONFIDENCE INTERVALESTIMATION

AND ETHICALISSUES

In this chapter,you learn:

r To constructandinterpretconfidenceintervalestimatesfor the meanandtheproportion
I How to determinethe samplesizenecessary to developa confidenceintervalfor the meanor
proportion
I How to useconfidenceintervalestimates in auditins
284 CHAPTEREIGHT Confidence
IntervalEstimation

Using Statistics@ Saxon Home Irprovement

SaxonHome Improvementdistributeshome improvementsuppliesin
northeasternUnitedStates.As a companyaccountant, you are
for the accuracyof the integratedinventorymanagementand salesin
mation system.You could review the contentsof eachand everyrecord
checkthe accuracyof this system,but sucha detailedreviewwould
time-consumingand costly.A better approachwould be to usestatisti
inferencetechniquesto draw conclusionsaboutthe populationof
recordsfrom a relativelvsmall samolecollecteddurins an audit.At
end of eachmonth,you could selecta sampleof the salesinvoices
determinethe followins:
r The meandollaramountlistedon the salesinvoicesfor themonth.
r The totaldollaramountlistedon the salesinvoicesfor themonth.
r Any differencesbetweenthe dollar amountson the salesinvoices
the amountsenteredinto the salesinformationsystem.
r The frequencyof occurrenceof errorsthatviolatethe internalcontrolpolicy of the wa
Sucherrorsincludemakinga shipmentwhenthereis no authorizedwarehouse removalslip,fai
ureto includethe correctaccountnumber,andshippingtheincorrecthomeimprovement item.
How accurateare the resultsfrom the samplesand how do you usethis information?Are
the samplesizeslargeenoughto giveyou the informationyou need?

processofusing sampleresultsto drawconclusionsaboutthecharac.

Q tatisticalinferenceis the
tJteristics of a population. statisticsenablesyouto estimaleunknownpopulationchar-
Inferential
acteristicssuchasa populationmeanor a populationproportion.Twotypesof estimatesareused
to estimatepopulationparameters: point estimatesand intervalestimates.A point estimateis the
valueof a singlesamplestatistic.A confidenceinterval estimateis a rangeof numbers,calledan
interval,constructed aroundthepoint estimate. Theconfidenceintervalis constructed suchthatthe
probabilitythatthepopulationparameteris locatedsomewhere within the intervalis known.
Supposeyou would like to estimatethe meanGPA of all the studentsat your university.
The meanGPAfor all the studentsis an unknownpopulationmean,denotedby p. Youselecta
sampleof studentsand find that the samplemeanis 2.80.The samplemean,X = 2.80,is a
point estimateof the populationmean,p. How accurateis 2.80?To answerthis question,you
mustconstructa confidenceintervalestimate.
In this chapter,you will learnhow to constructandinterpretconfidenceintervalestimates.
Recallthat the samplemean, X, is a point estimateof the populationmean,p. However,the
samplemeanvariesfrom sampleto samplebecause it depends on theitemsselected in thesam-
ple.By takinginto accounttheknownvariabilityfrom sampleto sample(seeSection7.4 onthe
samplingdistributionof the mean),you can developthe intervalestimatefor the population
mean.The intervalconstructed shouldhavea specifiedconfidenceof correctlyestimatingthe
valueof the populationparameterp. In otherwords,thereis a specifiedconfidencethat p is
somewherein the rangeof numbersdefinedby the interval.
Supposethat after studyingthis chapter,you find that a 95ohconfidenceinterval for the
meanGPA at your universityis(2.75 < p < 2.85).Youcan interpretthis intervalestimateby
statingthat you are95o/oconfidentthat the meanGPA at your universityis between2.75 and
2.85.Thereis a 5o/ochancethatthe meanGPAis below2.75or above2.85.
After learningabouttheconfidenceintervalfor themean,you will learnhow to developan
interval estimatefor the populationproportion.Then you will learn how large a sampleto
selectwhenconstructingconfidenceintervalsandhow to perform severalimportantestimation
procedures accountants usewhenperformingaudits.
 8.1: ConfidenceIntervalEstimationfor the Mean (o Known) 285

8.1 CONFIDENCEINTERVALESTIMATION
FORTHE MEAN (o KNOWN)
In Section 7 .4, you used the Central Limit Theorem and knowledge of the population distribu-
tion to determine the percentageof sample means that fall within certain distancesof the pop-
ulation mean. For instance,in the cereal-fill example used throughout Chapter 7 (seeExample
7 '6 on page 268), 95o/oof all samplemeansare between362.12and 373.88grams.This
state-
ment is basedon deductivereasoning.However, incluctivereasoning is what you need here.
You need inductivereasoningbecause,in statisticalinference,you use the resultsofa
sin-
gle sample to draw conclusionsabout the population, not vice versa.Supposethat in
the cereal-
fill example, you wish to estimate the unknown population mean, using the information
from
o n l y a s a m p l e .T h u s , r a t h e rt h a n t a k e p + ( 1 . 9 6 l ( o l 1 r nf ) t o f i n d t h e u p p e ra n d l o w e r l i m i t s
around p, as in Section 7 .4, you substitute the sample mean, X- for the unknown and
, I use
X t ( 1 . 9 6 ) ( o l ( . ' l n ) a s a n i n t e r v a l t o e s t i m a t et h e u n k n o w n p . A l t h o u g h i n p r a c t i c e y o u
select a single sample of size n and compute the mean, X, in order to understandthe full
meaning of the interval estimate,you need to examine a hypotheticalset of all possible
sam-
plesofr values.
Supposethat a sample of n : 25 boxes has a mean of 362.3 grams. The interval developed
t o e s t i m a t ep i s 3 6 2 . 3I ( l . 9 6 X l 5 ) l ( ^ 1 2 5 ) ,o r 3 6 2 . 3+ 5 . g 9 .T h e e s t i r n a t e
of p is

356.42(u(368.18

Becausethe populationmean,p (equalto 368),is includedwithin the interval,this sample

aboutp (seeFigureg.l).
resultsin a correctstatement

FIGURE
8.1
Confidenceinterval
estimatesfor five
differentsamples of
n = 25 taken from a
p o p u l a t i o nw h e r e
p=368ando:15
362.12 368 373.88
I
Xt = 362.s
356.42 362.3 368.18
I =sos.s
JOJ.bZ 375.38
x. =:oo
360
Xa= 362.12
356.24 362.12 398
Xu= eZa.eA

To continuethis hypotheticalexample,supposethat for a differentsampleof n:25 boxes,

the mean is 369.5.The interval developedfrom this samoleis

+ (1.s6)(t
36s.s sybl2s)

or 369.5+ 5.88.Theestimate
is

363.62SuS375.38

Becausethe populationmean,p (equalto 368), is also includedwithin this interval.this state-

ment about u is correct.
286 IntervalEstimation
EIGHTConfidence
CHAPTER

Now, beforeyou begin to think that correctstatementsaboutp are alwaysmadeby devel-

oping a confidenceinterval estimate,supposea third hypotheticalsampleof n :25 boxes
is selectedand the_ffrmplemean is equal to 360 grams.The interval developedhere is
or 360+ 5.88.In thiscase,theestimate
360 t (1.96)(15)l(a|25), of p is

354.12(p(365.88

This estimateis not aconectstatement because thepopulationmean,p, is not includedin theinter-

val developedfrom this sample(seeFigure8.1).Thus,for somesamples,the intervalestimateof p
is correct,but for othersit is incorrect.In practice,only one sampleis selected,andbecausethe
populationmeanis unknown,you cannotdeterminewhetherthe intervalestimateis correct.
To resolvethis dilemmaof sometimeshavingan intervalthatprovidesa correctestimateand
sometimeshaving an interval that providesan incorrect estimate,you needto determinethe pro-
portionof samplesproducingintervalsthatresultin correctstatements aboutthepopulationmean,
p. To do this, considertwo otherhypotheticalsamples:the casein which X = 362.12 gramsrnd
thecaseinwhich X =373.88grams.IfX =362.12,theintervalis362.121(1.96X15)l(425),
or362.12+ 5.88.Thisleadsto thefollowinsinterval:

356.24(uS368.00

Becausethe populationmeanof 368 is at the upperlimit of the interval,the statementis a cor-

rectone(seeFigure8.1).
When X = 373.88,the intervalis 373.88t (1.96X15)l(425), or 373.88+ 5.88.The
intervalfor the samplemeanis

368.00ap!319.76

In this case,becausethe populationmeanof 368 is includedat the lowerlimit of the interval,

the statement is correct.
In Figure 8.1, you seethat when the samplemeanfalls anywherebetween362.12and
373.88grams,the populationmeanis includedsomauherewithin the interval.In Example7.6
on page268,you foundthat 95o/o of the samplemeansfall between362.12and373.88grams.
Therefore,95%oof al| samplesof n : 25 boxeshavesamplemeansthat includethe population
meanwithin the interval developed.
Because,in practice,you selectonly one sampleand p is unknown,you neverknow for
surewhetheryour specificintervalincludesthe populationmean.However,if you takeall pos-
sible samplesof n and computetheir samplemeans,95o/oof the intervalswill includethe pop-
ulation mean,and only 5o/oof them will not. In otherwords,you have95% confidencethat the
populationmeanis somewherein your interval.
Consideronceagain,the first samplediscussed in this section.A sampleof n : 25 boxes
hada samplemeanof 362.3grams.The intervalconstructed to estimatep is:

362.3
t( 1.e6Xls) /( J25)
362.3+ 5.88
356.42S u( 368.18

The intervalfrom356.42to 368.18is referredto asa 95% confidenceinterval.

that the meanamountof cerealin the populationof boxesis some-

"I am9ilo/oconfident
wherebetween356.42 and368.18grams."
 Interval
8.1: Confidencc for theMean(o Known) 287
E,stirnation

In somesituations,you might want a higher degreeof confidence(such as99{t/o) of includ-

ing the populationmean within the interval. In other cases,you rnight acceptlessconfidence
(such as 90%) of correctlyestirnatingthe populationmean. In general,the level of confidence
is symbolizedby ( I - o) x 100%o, where u is the proportion in the tails of the distributionthat
is outsidethe confidenceinterval.The proportionin the uppertail of the distributionis ul2, and,
the proportion in the lower tail of the distributionis ul2.You use Equation(8.1) to constructa
( I - ct) x 100% confidenceintervalestimateof the mean with o known.

CONFIDENCE FORTHEMEAN(o KNOWN)

INTERVAL
o
x t z --r=
\l n

F-zf .u <n+2ft (8.1)

where Z: the value correspondingto a cumulative area of 1 - al2 from the standardized
normal distribution (that is, an upper-tail probability of ul2).

The value ofZ neededfor constructinga confidenceinterval is calledthe critical value for
the distribution.95o/o confidencecorrespondsto an o, value of 0.05.The critical Zvalue corre-
spondingto a cumulativeareaof 0.9750 is L96 becausethere is 0.025 in the uppertail of the
distributionand the cumulativearealessthanZ: 1.96is 0.975.
There is a differentcritical value for eachlevel ofconfidence. I - cr.A level ofconfidence
of 95ohleadsto a Z value of | .96 (seeFigure 8.2). 99% confidencecorrespondsto an cr value
of 0.01.The Z value is approximately2.58 becausethe upper-tailareais 0.005 and the cumula-
t i v e a r e al e s st h a nZ : 2 . 5 8 i s 0 . 9 9 5( s e eF i c u r e8 . 3 ) .

FIGURE
8.2
N o r m a cl u r v e f o r
d e t e r m i n i n gt h e
Z v a l u en e e d e d
for 95% confidence

'p, X
-1.96 0 +1.96 Z

FIGURE
8.3
N o r m a cl u r v ef o r
d e t e r m i n r ntgh e
Z v a l u en e e d e d
for99% confidence

x
+ 2 . 5 8Z
288 CHAPTEREIGHT ConfidencelntervalEstimation

Now that variouslevelsof confidencehavebeenconsideredwhv not makethe confi

level ascloseto I 00% aspossible?Beforedoing so,you needto realizethat any increasein
level of confidenceis achievedonly by widening (and making lessprecise)the confi
interval.There is no "free lunch" here.You would havemore confidencethat the
meanis within a broaderrangeof values;however,this might make the interpretationof
confidenceinterval lessuseful.The trade-offbetweenthe width of the confidenceinterval
the level ofconfidence is discussedin greaterdepthin the contextofdetermining the
sizein Section8.4. Example8.1 illustratesthe applicationof the confidenceinterval

EXAMPLE 8.1 ESTIMATING

THEMEANPAPER
LENGTHWITH95% CONFIDENCE
A papermanufacturer
hasa production
process
thatoperates
continuously
throughout
an
productionshift. The paper is expectedto havea meanlength of l1 inches,and the
deviationof the length is 0.02 inch. At periodic intervals,a sampleis selectedto
whetherthe meanpaperlengthis still equalto 1l inchesor whethersomethinghasgone
in the productionprocessto changethe lengthofthe paperproduced.You selecta random
ple of 100 sheets,and the meanpaperlengthis 10.998inches.Constructa95%o
interval estimatefor the populationmeanpaperlength.

SOLUTION UsingEquation(8.1)on page287, with Z: |.96 for 95o/o

confidence,

Xxz*=ro.essr(1.e6)g
4n {100
= 10.998
+ 0.00392
Sp ( 11.00192
10.99408

Thus, with 95% confidence,you concludethat the populationmeanis between10.99408and

11.00192inches.Becausethe intervalincludes11, the value indicatingthat the production
processis working properly,you haveno reasonto believethat anythingis wrong with the
ductionprocess.

To seethe effectof using a99o/oconfidenceinterval,examineExample8.2.

EXAMPLE 8.2 THE MEAN PAPERLENGTHWITH99% CONFIDENCE

ESTIMATING
Construct
a99%o
confidence for thepopulation
intervalestimate meanpaperlength.

(8.I ) onpage287,withZ : 2.58for 99o/o

SOLUTIONUsingEquation confidence,

Xtz*=lo.eest(2.58)g
4n {100
= 1 0 . 9 91
80 . 0 0 5 1 6
(p ( 11.00316
10.99284

Once again,becauseI I is includedwithin this wider interval,you haveno reasonto beli

that anythingis wrong with the productionprocess.
 8.1: Confidence Interval Estimation for the Mean (o Known) 289

As discussed in section7.4,the samplingdistributionof t is normallydistributedif the

populationofXis a normal distribution.And" if thepopulationofXis not a normaldistribution,
the CentralLimit Theoremensuresthat X is normally distributedwhen r is large.However,
when dealingwith a small samplesizeand a populationof X that is not a normal distribution,
the samplingdistributionof X is not normally distributedand thereforethe confidenceinter-
val discussedin this sectionis inappropriate.In practice,however,aslong asthe samplesizeis
large enoughand the populationis not very skewed,you can use the confidenceinterval
defined in Equation8.1 to estimatethe populationmeanwhen o is known. To assessthe
assumptionof normality,you can evaluatethe shapeof the sampledataby using a histogram,
stem-and-leafdisplay,box-and-whiskerplot, or normal probabilityplot.

Learningthe Basics c. Must you assumethat the populationamountof paint

per can is normally distributedhere?Explain.
8.1 If X = 85, o : 8, andn:64, construct a d. Constructa 95ohconfidenceinterval estimate.How
95% confidenceinterval estimateof the popula- doesthis changeyour answerto (b)?
tion mean,p.

M ?:,r, x =t25, o: 24. andn:ru,.:""::T.:,: ffi i;1"111.1H",'J.Til:11,[Tll"jJl

lAsslsTl99% confidence
intervalestimateof ---- popula-
-- the r-r"'-
uon mean'p'
8.3 A marketresearcherstatesthat shehas 95oh confi-
dencethat the mean monthly sales of a product are
between$170,000and $200,000.Explainthe meaningof
thisstatement.
8.4 Why is it not possiblein Example8.1 on page288 to
have100%confidence? Explain.
8.5 Fromthe resultsof Example8.1 on page288 regard-
ing paperproduction,is it true that 95%oof the sample
means will fall between10.99408and 11.00192inches?
Explain.
8.6 Is it true in Example8.1 on page288 that you do not
knowfor sure whetherthe populationmean is between
10.99408 and 11.00192
inches? Explain.
Applyingthe Concepts
8.7 The managerof a paint supply store wants
to estimatethe actualamountof paint contained
in l-gallon cans purchasedfrom a nationally
knownmanufacturer.The manufacturer'sspecifications
statethat the standarddeviationof the amountof paint is
to 0.02 gallon. A random sample of 50 cans is
selected,andthe samplemeanamountof paint per l-gallon
canis 0.995sallon.
a. Constructa99o/oconfidenceintervalestimateof thepop-
ulationmeanamountof paint includedin a l-gallon can.
On the basisof theseresults,do you think the manager
hasa right to complainto the manufacturer?Why?
| z seul shipmentof lieht bulbs.The standard deviationis
EU 100 hours.A-random sampleof 64 light bulbs
indicateda samplemeanlife of 350 hours.
a. Constructa 95o/oconfidenceinterval estimateof the
populationmeanlife of light bulbs in this shipment.
b. Do you think that the manufacturerhasthe right to state
that the light bulbs last an averageof 400 hours?
Explain.
c. Must you assumethat the populationof light bulb life is
normally distributed?Explain.
d. Supposethat the standarddeviationchangesto 80 hours.
What areyour answersin (a) and (b)?
8.9 The inspectiondivision of the Lee County
Weightsand MeasuresDepartmentwantsto esti-
mate the actual amount of soft drink in 2-Iiter
bottles at the local bottling plant of a large nationally
known soft-drink company. The bottling plant has
informed the inspectiondivision that the populationstan-
dard deviationfor 2-liter bottles is 0.05 liter. A random
sampleof 1002-literbottlesat this bottlingplantindicates
a samplemeanof 1.99liters.
a. Constructa 95ohconfidenceinterval estimateof the
populationmeanamountof soft drink in eachbottle.
b. Must you assumethat the populationof soft-drinkfill is
normally distributed?Explain.
c. Explainwhy a valueof 2.02liters for a singlebottleis
not unusual,eventhough it is outsidethe confidence
interval you calculated.
d. Supposethat the samplemean is 1.97 liters. What is
your answerto (a)?
-

290 CHAPTER EIGHT Confidencelnterval Estimarron

8.2 CONFIDENCEINTERVALESTIMATION
FORTHE MEAN (o UNKNOWN)
Just as the mean of the population, p, is usually unknown, you rarely know the actual standard
deviation of the population,o. Therefore,you often need to constructa confidenceinterval
estimateof p, using only the sample statistics X and S.

Student'st Distribution
At the beginning of the twentieth century, William S. Gosset, a statistician for Guinness
Breweries in Ireland (see reference3) wanted to make inferencesabout the mean when o was
unknown. BecauseGuinnessemployeeswere not permitted to publish researchwork under
their own names,Gossetadoptedthe pseudonym"Student." The distribution that he developed
is known as Student's r distribution and is commonly referred to as the t distribution.
If the random variableX is normally distributed"then the following statistic has a t distri-
bution with n - I degrees of freedom:

Y -tt

s
,FN

This expressionhas the same form as the Z statistic in Equatron(7 .4) on page 266, except that
S is used to estimatethe unknown o. The concept of degreeso.f'.freedom is discussedfurther on
pages 291-292.

Properties of the t Distribution

In appearance,the / distribution is very similar to the standardizednormal distribution. Both
distribrrtion.s are bell shapecl. Floweve-r, the t tlistribLrtiorr hits l77orcarea irt the tirils arrd less ln
rfie ccnfcr lh:rn clocs thc sfandardized norntal distribufion (see Figtrre 8.4). Because Jis used to
estirnate the unknown o. the values of 1 are more variable than those for Z.

FIGURE
8.4
Standardized - S t a n d a r d i z endo r m a ld i s t r i b u t i o n
n o r m a ld i s t r i b u t i o n - f distribution
a n d t d i s t r i b u t i o nf o r for 5 degrees
5 degrees of freedom of freedom

The degreesof freedom, n - 1, aredirectly related to the sample size,n. As the samplesize
and degreesof freedom increase,S becomesa better estimateof o, and the r distribution grad-
ually approachesthe standardizednormal distribution, until the two are virtually identical.
With a sample size of about 120 or more, S estimateso precisely enough that there is little dif-
ferencebetweenthe t and Z distributions.
As statedearlier, the t distribution assumesthat the random variableX is normally distrib-
uted. In practice, howeveq as long as the sample size is large enough and the population is not
very skewed, you can use the I distribution to estimate the population mean when o is
unknown. When dealing with a small sample size and a skewedpopulation distribution,the
validity of the confidence interval is a concern.To assessthe assumptionof normality, you can
 8.2: Confidence for theMean(o Unknown) 291
IntervalE,stimation

evaluate the shape of the sample data by using a histogram, stem-and-leafdisplay, box-and-
whisker plot, or normal probabilityplot.
You find the critical values of r for the appropriatedegreesof freedom from the table of the
r distribution (seeTable E.3). The columns of the table representthe area in the upper tail of the
r distribution. The rows of the table representthe degreesof freedom.The cells of the table rep-
resentthe particular / value for each specific degreeof freedom. For example, with 99 degrees
of freedom, if you want 95% confidence, you find the appropriatevalue of l, as shown in Table
8. L The 95% confidencelevel meansthat2.5ohof the values(an areaof 0.025)are in eachtail
of the distribution. Looking in the column for an upper-tail area of 0.025 and in the row corre-
sponding to 99 degreesof freedom gives you a critical value for t of 1.9842.Becauser is a sym-
metrical distribution with a mean of 0, if the upper-tail value is +1.9842, the value for the
lower-tail area (lower 0.025) is - l .9842.A I value of -1.9842 means that the probability that t
is lessthan -1.9842 is 0.025,or2.5oh(seeFigure 8.5).Note that for a 95% confidenceinterval,
you will always use an upper-tail area of 0.025. Similarly, for a99o/oconfidence interval, use
0 . 0 0 5 ,f o r 9 8 % ou s e0 . 0 1 ,9 0 % u s e0 . 0 5 ,a n d 8 0 % u s e0 . 1 0 .

T A B L E8 . 1 Upper-TailAreas
Determining the Critical Degreesof Freedom ?{ .10 .05 .01 .005
Valuefrom the t Table
foran Areaof 0.025 I 1.0000 3.0777 6 . 3 1 3 8 1 2 . 31.8207 63.6574
in EachTailwith 99 2 0 . 8 1 6 5 1 . 8 8 s 6 2.9200 4 7 6.9646 9.9248
Degrees of Freedom J 0.1649 1 . 6 3 1 7 2.3s34 3 . 824 4.s407 5.8409
4 0.7407 1.s332 2 . 1 l38 2 . 164 3.1469 4.604r
5 0.1267 1 . 4 1 s 9 2 . 0 1 s 0 2 706 3.3.649 4.0.322

96 0.6771 1.2904 2.3658 2.6280

97 0.6770 t.2903 2.3654 2.6275
98 0.6770 t.2902 2.36s0 2.6269
2.3646 2.6264
100 0.6770 1.9840 2.3642 2.6259
Source; E.ytroctel ]inn Tuhle E.3

FIGURE
8.5
t d i s t r i b u t i o nw i t h 9 9
degreesof freedom

+1.9842

The Concept of Degrees of Freedom

In Chapter3 you learnedthat the numeratorof the samplevariance,52 [seeEquation(3.9) on
page 107],requiresthe computationof
rt
S
S -.)
e
n
L(x,-xr
292 CHAPTER EIGHT ConfidenceIntervalEstimation

In order to compute 52, you first need to know X . Therefore, only r - I of the samplevalues
are free to vary. This means that you have n - 1 degreesof freedom. For example, suppose a
sample of five values has a mean of 20. How many values do you need to know beforeyoucan
determine the remainder of the values?The fact that n: 5 and X = 20 also tells you that
il

Tr =too
.L"t

because
n
\v
i=l ;

Thus, when you know four of the values, the fifth one is not free to vary becausethe sum must
add to 100. For example, if four of the values are 18, 24, 19, and 16, the fifth value must be 23
so that the sum equals100.

The Confidence lnterval Statement

Equation (8.2) defines the (l - a) x 100% confidence interval estimate for the mean with o
unknown.

INTERVAL
CONFIDENCE FORTHEMEAN(o UNKNOWN)

V +t..,
s
G

x-tn-r#.u <X+,,.# (8.2)

where /,_, is the critical value of the r distribution, with n - I degreesof freedom for an
areaof al2 in the upper tail.

To illustrate the application of the confidence interval estimate for the mean when the
standarddeviation, o, is unknown, recall the Saxon Home Improvement Company Using
Statisticsscenariopresentedon page 284.You wanted to estimatethe mean dollar amount
listed on the salesinvoices for the month. You select a sample of 100 sales invoices from the
population of salesinvoices during the month, and the sample mean of the 100 salesinvoicesrs
$110.27,with a sample standarddeviationof $28.95.For95o/oconfidence,the critical value
from the / distribution(as shown in Table 8.1) is L9842. Using Equation(8.2),

it. 'S
^ lln I T
1n

= | t0.2+ 28.95
7 ( 1 . s 8 4) 2
{100
= 1 1 0 . 2+7 5 . 7 4
$ 1 0 4 . 5( 3u < $ 1 1 6 . 0 1

A Microsoft Excel worksheet for these data is presentedin Figure 8.6.

 8.2: ConfidenceIntervalEstimationfor the Mean (o Unknown) 293

FIGURE8.6 f-A'*--q
j 1 rEstimate
for the MeanSalesInvoiceI
MicrosoftExcel m-
1--_
worksheet to compute j- Q Data
a confidence interval ;4ffi
estimate for the mean 5ft
s a l e si n v o i c ea m o u n t 6 t S a m n l eS i z e
for the SaxonHome 7 ConfidenceLevel
lmprovement Company B
9 l n t e r m e d i aCt ae l c u l a t i o n s
1 0 S t a n d a rEdn o ro f t h eM e a n :84/SaRT{86}
s of Freedrlm =85-1
12 | Value =Trilv(l - 87,811)
57443 = 8 1 2" 8 1 0
SeeSectlon EB.2to create
thrs. ConfidenceInterval
:85 - 813
:85 * 813

Thus, with 95% confidence,you concludethat the mean amount of all the salesinvoicesis
between$ 104.53and $ I 16.01. The 95% confidencelevel indicatesthat if you selectedall possi-
ble samplesof 100 (something that is never done in practice), 95o/oof the intervals developed
would include the populationmean somewherewithin the interval.The validity of this confi-
denceinterval estimatedependson the assumptionof normality for the distributionof the amount
of the salesinvoices.With a sampleof 100,the normality assumptionis not overly restrictive,and
the useof the t distribution is likely appropriate.Example 8.3 further illustrateshow you construct
the confidenceinterval for a mean when the population standarddeviation is unklown.

E X A M P L E8 . 3
ESTIMATING
THEMEANFORCEREOUIRED
TO BREAKELECTRIC
INSULATORS
A manufacturingcompanyproduceselectric insulators.If the insulatorsbreak when in use,a
short circuit is likely. To test the strength ofthe insulators,you carry out destructivetesting to
determine how rnuch,lbrzc is required to break the insulators.You measureforce by observing
how many poundsare appliedto the insulatorbefore it breaks.Table 8.2 lists 30 valuesfrom
this experiment, which are located in the file [![!fQ Construct a 95o/oconfidence interval
estimatefor the population mean force required to break the insulator.

T A B L E8 . 2
F o r c e( i n P o u n d s )
R e q u i r e dt o B r e a k
theInsulator
1,870 1,128 1,656 I,610 1,634 t,784 1,522 1,696 1,592 t,662
1 , 8 6 6 1 , 7 6 4 1 , 7 3 4 1 . 6 6 2 1 , 7 3 4 1 , 7 7 4 1 , 5 5 0 | . t 5 6 t . 76 2 r , 8 6 6
1 , 8 2 0 t , 7 4 4 1 , 7 8 8 1 , 6 8 8 1 , 8 1 0 1 , 7 5 2 1 , 6 8 0 I. 8 1 0 t . 6 5 2 t , 7 3 6

SOLUTION Figure8.7 showsthatthe samplemeanis F = 1,723.4poundsandthe sample

standarddeviationis S: 89.55pounds.UsingEquation(8.2)on page292to construct thecon-
fidenceinterval,you needto determinethe criticalvaluefrom the / tablefor an areaof 0.025in

FIGURE8.7
MicrosoftExcel
confidence interval
estimate for the mean
amountof force
requiredto break
electricinsulators q_ ___-_,,___
L
I i Intermediale
Calculations
=BIISORT{85)
-86-l
-Tlilv(l - 87, 811)
llnlervalHalfWidlh -812 " 810
SeeSection EB.2to create
this.
-85 - 813
-85 . 813
294 CHAPTEREIGHT Confidence
Intcrval
Estin.ration

each tail, with 29 degreesof freedom.From Table 8.3, you seethat t),\:2.0452. Thus, usi
, - 3 0 ,a n dt , o : 2 . 0 4 5 2 ,
X = 1 , 1 2 3 . 4S, : 8 9 . 5 5 n

x + t, t
s
G
-t)7 89'55
= | 4 -+ 't-) "o r-s ") r'
'60
= 1 . 1 2 3 . 4+ 3 3 . 4 4

1,689.96{uS1.756.84

You concludewith95% confidencethat the meanbreakingforce requiredfor the populationr

insulatorsis between1,689.96and 1,756.84pounds.The validity of this confidenceintervales
mate dependson the assumptionthat the fbrce requiredis norrnally distributed.Remember,hou
eveq that you can slightly relax this assumptionfor large samplesizes.Thus, with a sampleof 3(
you can usethe r distributionevenif the amountof force requiredis only slightly left skewed.Fror
the notmal probabilityplot displayedin Figure8.8 or the box-and-whiskerplot displayedin Figur
8.9,the amountof force requiredappearsslightly left skewed.Thus,the t distributionis appropria
for thesedata.

Force Requiredto Break ElectricalInsulators

FIGURE
8.8 2000
T
M i c r o s o f tE x c e ln o r m a l 1800

p r o b a b i l i t yp l o t f o r
1600
the amount of force
ranr riraA tn hrorlz 1400
e l e c t r i ci n s u l a t o r s
1200

! rooo
800

See Sectlon E6.2 to create 600

this.
400

200

---#
-?.5 -1.5 .1 .0.5 0 0.5 1 2 2.5
Z Value

Force Required to Break Electrical Insulators

FIGURE8.9
MicrosoftExcelbox-
and-whisker plot for
the amountof force
requiredto break
electricinsulators

See Section E3.4 to create

this.

1700 1750 1800


learningthe Basics
8.10 Determinethe criticalvalueof / in eachof
the following circumstances:
o " I - 0 : 0 . 9 5 .n : l 0
b . I - o : 0 . 9 9n. : l 0
c.l-0:0.95,n:32
d . I - c r : 0 . 9 5n, : 6 5
e.l-0=0.90. n:16
8.11 If X = 75,S :24, andn:36. andassum-
ing that the populationis normally distributed,
constructa 95% confidenceinterval estimateof
thepopulationmean,p.
8.',2 lf X = 50,,S:15,andn:16, andassum-
ing that the populationis normally distributed,
constructa 99Yoconfidenceinterval estimateof
populationmean,p.
8.13 Constructa95%oconfidenceintervalestimatefor the
iopulationmean,basedon eachof the followine setsof
assumingthat the populationis normally distributed:
S e t1 l, l, l, 1,8,8,8,8
S e t2 1,2,3,4,5,6,7,8
lain why these data sets have different confidence
eventhoughthey havethe samemeanandrange.
14 Constructa 95o/oconfidenceintervalfor the popu-
mean,basedon the numbersl, 2, 3, 4, 5, 6, and20.
the number20 to 7 and recalculatethe confi-
interval.Using theseresults,describethe effectof
outlier(that is, an extremevalue) on the confidence
the Concepts
15 A stationerystorewantsto estimatethe meanretail
of greetingcardsthat it hasin its inventory.A random
of 100 greetingcardsindicatesa meanvalue of
55anda standarddeviationof $0.44.
Assuminga normal distribution,constructa95o/oconfi-
denceintervalestimateof the meanvalueof all greeting
cardsin the store'sinventory.
Suppose therewere2,500greetingcardsin the store's
inventory.How arethe resultsin (a) usefulin assisting
the store owner to estimate the total value of her
inventory?
8.16 SouthsideHospital in Bay Shore,New
York,commonlyconductsstressteststo studythe
heartmuscleafter a personhas a heart attack.
of the diagnosticimaging departmentconducted
lity improvementproject to try to reduce the turn-
8.2: ConfidenceIntervalEstimationfor theMean(o Unknown) 295
aroundtime for stresstests.Turnaroundtime is defined as
the time from when the test is orderedto when the radiolo-
gist signsoff on the test results.Initially, the meanturn-
aroundtime for a strbsstestwas68 hours.After incorporat-
ing changes into the stress-testprocess, the quality
improvementteam collecteda sampleof 50 turnaround
times. In this sample,the meanturnaroundtime was 32
hours,with a standarddeviationof 9 hours(Extractedfrom
E. Godin, D. Raven,C. Sweetapple,and F, R. Del Guidice,
"Faster Test Results," Quality Progress, January 2004,
37(l), pp. 33-39).
a. Constructa95o/oconfidenceintervalfor the population
meanturnaroundtime.
b. Interpretthe intervalconstructedin (a).
c. Do you think the quality improvementprojectwasa suc-
cess?Explain.
8.17 The U.S. Departmentof Transportation
requirestire manufacturersto providetire perfor-
manceinformation on the sidewallof the tire to
betterinform prospectivecustomerswhenmakingpurchas-
ing decisions.One very important measureof tire perfor-
manceis the treadwear index, which indicatesthe tire,s
resistanceto treadwearcomparedwith a tire gradedwith a
baseof 100.This meansthat a tire with a grade of 200
shouldlast twice as long, on average,as a tire gradedwith
a baseof 100.A consumerorganizationwantsto estimate
the actualtreadwearindex of a brandnameof tires graded
200 that areproducedby a certainmanufacturer. A random
sampleof n : l8 indicatesa samplemeantreadwearindex
of 195.3and a samplestandarddeviationof 21.4.
a. Assumingthat the populationof treadwear indicesis
normallydistributed,constructa95% confidenceinter-
val estimateof the populationmeantreadwear index
for tires produced by this manufacturerunder this
brand name.
b. Do you think that the consumerorganizationshould
accusethe manufacturerof producingtires that do not
meetthe performanceinformationprovidedon the side-
wall of the tire? Explain.
c. Explain why an observedtreadwear index of 2 l0 for a
particular tire is not unusual,eventhough it is outside
the confidenceinterval developedin (a).
8.18 The following data (storedin the file !!@@
representthe bouncedcheck fee, in dollars, chargedby a
sampleof 23 banksfor direct-depositcustomerswho main-
tain a $100balance:
26 28 20 20 21 22 2s 2s 18 25 15 20
18 20 25 25 22 30 30 30 15 20 29
Source: Extractedfrom "The New Face of Banking," Consumer
Reports,June 2000.
296 EIGHTConfidence
CHAPTER Interval
Estimation

a. Constructa 95ohconfidenceinterval for the population
meanbouncedcheckfee.
b. Interpretthe intervalconstructedin (a)
8.19 The datain the file @ft[! representthe total fat,
in gramsper serving,for a sampleof 20 chickensand-
wichesfrom fast-foodchains.The dataareasfollows:
7 8 4 5 1620202419 30
23 30 25 t9 29 29 30 30 40 s6
"FastFood:AddingHealthto theMenu,"
Extractedfrom
Source:
ConsumerReports,
September2004,pp.28-31.
a. Constructa95o/oconfidenceintervalfor the population
meantotal fat, in gramsper serving.
in (a).
b. Interpretthe intervalconstructed
8.20 Oneof the majormeasures of the qualityof service
providedby any organizationis the speedwith which it
responds to customercomplaints.A largefamily-helddepart-
ment storeselling furniture and flooring, including carpet,
hadundergone a majorexpansionin thepastseveralyears.In
particular,the flooring departmenthad expandedfrom 2
installationcrewsto an installationsupervisoqa measurer,
and l5 installationcrews.Lastyear,therewere50 complaints
concemingcarpetinstallation.The following data,in the file
@EE, representthenumberof daysbetweenthereceipt
of a complaintandtheresolutionof the complaint:
27 152 2 t23 81 74 21
54 5 35r37 3l
ll t9 t26 ll0 110 2961359431265
t2 4 16s 32 29 2 8 2 9 2 6 2 s 114 13
13105274 52 30 22 36 26 20 23
33 68
a. Constructa 95o/oconfidenceinterval estimateof the
meannumberof daysbetweenthe receiptof a complaint
andtheresolutionof the complaint.
b. What assumptionmustyou makeaboutthe population
distributionin (a)?
c. Do you think that the assumptionmadein (b) is seri-
ouslyviolated?Explain.
d. What effect might your conclusionin (c) haveon the
validityof theresultsin (a)?
8.21 In New York State,savingsbanksare permittedto
sell a form of life insurancecalledsavingsbank life insur-
ance(SBLI). The approvalprocessconsistsof underwrit-
ing, which includesa reviewof the application,a medical
informationbureaucheck,possiblerequestsfor additional
medicalinformationandmedicalexams,anda policy com-
pilation stagein which the policy pagesare generatedand
sentto thebank for delivery.The ability to deliverapproved
policiesto customersin a timely manneris criticalto the
profitabilityof this serviceto the bank.During a periodof
one month,a randomsampleof 27 approvedpolicieswas
selected,and the total processingtime, in days,wasas
shownbelowandstoredin the file@,
t3 19 t6 64 28 28 3t 90 60 56 3l s6 22 l8
45 48 t7 t7 lt 91 92 63 50 sl 69 16 17
a. Constructa 95ohconfidenceinterval estimateof the
meanprocessing time.
b. What assumptionmust you make about the population
distributionin (a)?
c. Do you think that the assumptionmadein (b) is seri-
ouslyviolated?Explain.
8.22 The data in the file [l$$@f!represent the bat-
tery life (in shots)for three-pixeldigitalcameras:
300 180 85 170 380 460 260 35 380 t20 rr0 240
Source: Extractedfrom "Cameras: More Featuresin the Mix,"
ConsumerReports,July 2005,pp. 14 18.
a. Constructa 95o/oconfidenceinterval for the population
meanbatterylife (in shots).
b. What assumptiondo you needto makeaboutthe popu-
lationofinterestto constructthe intervalin (a)?
c. Giventhe datapresented, do you think the assumption
neededin (a) is valid?Explain.
8.23 One operationof a mill is to cut piecesof steelinto
partsthat are usedlater in the frame for front seatsin an
automobile.The steelis cut with a diamondsawandrequires
the resultingpartsto be within +0.005inch of the length
specifiedby the automobilecompany.The measurement
reportedfrom a sampleof 100steelparts(andstoredin the
file @ is the difference,in inches,betweenthe actual
lengthof the steelpart, asmeasuredby a lasermeasurement
device,andthe specifiedlengthofthe steelpart. For exam-
ple, the first observation,-0.002, represents a steelpartthat
is 0.002inch shorterthanthe specifiedlength.
a. Constructa 95% confidenceintervalestimateof the
meandifferencebetweenthe actuallengthof the steel
part andthe specifiedlengthofthe steelpart.
b. What assumptionmust you make aboutthe population
distributionin (a)?
c. Do you think that the assumptionmadein (b) is seri-
ouslyviolated?Explain.
d. Comparethe conclusionsreachedin (a) with thoseof
Problem2.23on page53.

8.3 CONFIDENCEINTERVALESTIMATIONFORTHE PROPORTION

This sectionextendsthe conceptofthe confidenceintervalto categoricaldata.Hereyou are
concerned with estimatingtheproportionof itemsin a populationhavinga certaincharacteris-
tic of interest.The unknownpopulationproportionis represented by the Greeklettern. The
 Interval
8.3: Confidence Estirration
fbr thePronortion 297

point estirnatefor n is the sampleproportion,p - Xln, where ir is the sarrple size and X is the
in the sarnplehaving the characteristicof interest.E,quation(8.3)defines the
nurnberof iter.t.rs
confidenceinterval estir.nate for the populationproportion.

coNFTDENCE
TNTERVAL
ESTTMATE
FOXTXSjROPORTTON

,+ 7.lP(t- Pt
IT

or
p(t - p) p(I - p)
p-Z <n< p+z (8.3)
n n

X Number of items havins the characteristic

p: Sampleproportion: =
; Sr_pl. ,t^
n : populationproportion

Z : critical value from the standardizednorrnal distribution

r = s a m p l es i z e

assumingthat both X and n - X are greater than 5

You can usethe confidenceintervalestimateof the proportiondefinedin Equation(8.3) to

estimatethe proportion of salesinvoicesthat contain errors (seethe Using Statisticsscenario
o n p a g e2 8 4 ) .S u p p o s et h a t i n a s a m p l eo f 1 0 0s a l e si n v o i c e s .l 0 c o n t a i ne r r o r s T
. h u s .f o r t h e s e
d a t a . p: X l n : 1 0 / 1 0 0 : 0 . 1 0 . U s i n gE q u a t i o n( 8 . 3 )a n d Z - 1 . 9 6f o r 9 5 ' %c o n f i d c n c e ,

p(t- p)
rto n*7
il
an
CS ( 0 r. 0 x 0 . e 0 )
=0.10t(1.96)
ith 100
)nt
= 0 . 1 0t ( 1 . 9 6 ) ( 0 . 0 3 )
he
ral : 0 .l 0 + 0 . 0 5 8 8
3nt
0.0412<n(0.1588
m-
hat
Therefore,you havc95% confidencethatbetwecn4.12%and 15.88%of all thesalesinvoices
the
containerrors.Figure8.10showsa MicrosoftExcelworksheet
forthesedata.
,eel
FIGURE
8.10
1
Microsoft Excel 2
worksheet to construct 3
ac o n f i d e n cien t e r v a l ,
eri-
estimate for the 5
5
proportion of sales
:of 7
invoices that contain I
errors I =85/84
10 =NORMSTNV(I - 86)2)
11 S l a n d a r dE n o r o f t h e =sQRr(Be'(1- Bey84l
N lntewalHalfWidth =ABS(810'811)
IJ

, are 1i
15 *89 - 812
sris- =89'812
15
The
298 IntervalEstimation
CHAPTEREIGHT Confidence

Example8.4 illustratesanotherapplicationof a confidenceintervalestimatefor the

proportion.

E X A M P L E8 . 4 PRINTED
ESTIMATINGTHE PROPORTIONOF NONCONFORMINGNEWSPAPERS
A largenewspaper wantsto estimatethe proportionof newspapers printedthathavea noncon-
improper page setup. missing pages,or duplicate 8.
forming attribute,suchas excessive ruboff,
VC:
pages.A randomsampleof 200 newspapers from
is selected all the newspapersprintedduring
nonconformance. Constructand far
a singleday.For this sampleof 200,35 containsometype of
printed during the day (E
interfret a 90o/oconfidenceinterval for the proportion of newspapers
of
thathavea nonconformingattribute.
Jot
SOLUTION UsingEquation(8.3), a.

?5
- ::- = 0.175. and with a90oh level of confidenceZ =
'D b.
200
8.2
p(t - p) sm
p!z the
n
Ap
= 0 . 1 7 t5 ( .r ..6.4- s. [)o
{ -.;r: 7 s ) ( 0 . 8 2 s )
use
a.i
I
= 0.175r (1.645X0.0269)
l
t75 !0.0442 I

b.i
0 . 1 3 0 83 n 3 0 . 2 1 9 2
I
I
You concludewith 90% confidencethat between13.08%and2l.92ohof the newspapers I
printedon that dayhavesometype of nonconformance. c..

Equation(8.3)containsa Z statisticbecauseyou canusethe normaldistributionto approx' 8.2

imatethe binomial when
distribution the sample sizeis sufficientlylarge.In Example8.4,the is:
confidenceintervalusingZ providesan approximation
excellent for the populationproportion nol
-
becauseboth X andn X are greaterthan 5. However, if you do not havea sufficiently large wi
samplesize,you shouldusethebinomialdistributionrather thanEquation (8.3)(seereferences hei

1.2, and6). The exactconfidenceintervalsfor varioussamplesizesand proportionsof suc' ph

cesseshavebeentabulatedby FisherandYates(reference 2). sai
ag
CI
a.

b.

Learningthe Basics Applying the Concepts 8.

M
8.24 lf n : 200 andX: 50, constrwt a 95o/o @E 8.26 The telephonecompanywantsto estlmate
@
A S S T S Tconfidenceinterval estimate of the population thatwouldpurchase
l A s s r sITtheproportionof households
I I
proportion.

8.25 lf n = 400 andX : 25, constructa 99oh

ffi
random
an additionaltelephoneline if it weremadeavail-
ableat a substantially
sample of 500
reducedinstallationcost.A
households is selected.The results
ffi confidenceintervalestimateof the population
proportion.
indicatethat 135 of the households
additionaltelephoneline at a reduced
would purchase
cost.
installation
the

a. Constructa 99o/oconfidenceinterval estimateof the
populationproportionof households that would pur-
chasethe additionaltelephoneline.
b. How would the managerin chargeof promotionalpro-
gramsconcerningresidentialcustomersusethe results
in (a)?
8.27 Accordingto the Centerfor Work-LifePolicy,a sur-
vey of 500 highly educatedwomen who left careersfor
family reasonsfound that 660/owantedto return to work
(Extractedfrom A. M. Chakerand H. Stout,'After Years
Off, WomenStruggleto Revive Careers,"The Wall Street
Journal,May 6, 2004,p. Al).
a. Constructa95ohconfidenceintervalfor the population
proportionof highly educatedwomenwho left careers
for family reasonswho want to returnto work.
b. Interpretthe intervalin (a).
8.28 In a surveyconductedfor AmericanExpress,21o/oof
smallbusinessownersindicatedthattheynevercheckin with
theoffice when on vacation("Snapshots," usatoday.com,
April 18,2006.).The articledid not disclosethe samplesize
usedin the study.
a. Suppose thatthesurveywasbasedon 500smallbusiness
owners.Constructa 95o/oconfidenceintervalestimate
for the populationproportionof smallbusinessowners
who nevercheckin with the office whenon vacation.
b. Suppose that the surveywasbasedon 1,000smallbusi-
nessowners.Constructa 95o/oconfidenceintervalesti-
matefor thepopulationproportionof smallbusinessown-
erswho nevercheckin with the office whenon vacation.
c. Discussthe effect of samplesize on the confidence
intervalestimate.
8.29 The numberof olderconsumers in the UnitedStates
is growing, and they are becomingan even bigger eco-
n nomic force. Many feel overwhelmedwhen confronted
e with the task of selectinginvestments,
bankingservices,
's healthcareproviders,or phoneserviceproviders.A tele-
phonesurveyof 1,900older consumersfound that 27oh
saidtheydidn't haveenoughtime to be goodmoneyman-
agers(Extractedfrom "SeniorsConfusedby Financial
Choices-Study,"msnbc.com,May 6, 2004).
a. Constructa95o/oconfidenceintervalfor the population
proportionof older consumerswho don't think they
I haveenoughtime to be goodmoneymanagers.
b. Interpretthe intervalin (a).
8.30 A survey of 705 workers(USA TodaySnapshots,
March21, 2006,p. lB) wereaskedhow muchthey used
JC
se
il- 8.4 DETERMININGSAMPLESIZE
A
Its In each example of confidence interval estimation so far in this chapter, the sample size was
he reported along with the results with little discussion with regard to the width of the result-
ing confidence interval. In the businessworld, sample sizes are determined prior to data
8.4:Determining
Sample
Size 299
theInternetat work.423 saidtheyusedit within limits,and
183saidthattheydid not usethe Internetat work.
a. Constructa95ohconfidenceintervalfor the proportion
of all workerswho usedthe Internetwithin limits.
b. Constructa 95o/oconfidenceintervalfor the proportion
of all workerswho did not usethe Internetat work.
8.31 When do Americansdecidewhat to make for din-
ner?An online survey(N. Hellmich, 'AmericansGo for
the Quick Fix for Dinner,"USAToday,February14,2005,
p. 1B) indicatedthatT4o/o of Americansdecidedeitherat
the last minute or that day.Supposethat the surveywas
basedon 500 respondents.
a. Constructa 95o/oconfidenceintervalfor the proportion
of Americanswho decidedwhat to make for dinner
eitherat the lastminuteor that day.
b. Constructa 99o/oconfidenceintervalfor the proportion
of Americanswho decidedwhat to make for dinner
eitherat the last minuteor that day.
c. Which intervalis wider?Explainwhy this is true.
8.32 In a surveyof 894 respondents with salariesbelow
$100,000per year,367 indicatedthat the primary reason
for stayingon theirjob was interesting job responsibilities
("What Is the PrimaryReasonfor Stayingon Your Job?"
USATodaySnapshots, October5,2005,p. lB).
a. Constructa 95o/oconfidence intervalfor the proportion
of all workerswhoseprimaryreasonfor stayingon their
job wasinteresting job responsibilities.
b. Interpretthe intervalconstructedin (a).
8.33 A largenumberof companiesare trying to reduce
the cost of prescriptiondrug benefitsby requiring
employeesto purchasedrugsthrougha mandatorymail-
order program.In a survey of 600 employers,126 in-
dicated that they either had a mandatorymail-order
program in place or were adoptingone by the end of
2004 (B. Martinez,"Forcing Employeesto Buy Drugs
via Mail," The Wall StreetJournal, February 18,2004,
p. 1B).
a. Constructa95ohconfidenceintervalfor the population
proportionof employerswho hada mandatorymail-order
programin placeor wereadoptingoneby theendof 2004.
b. Constructa99ohconfidenceintervalfor the population
proportionof employerswho hada mandatorymail-order
programin placeor wereadoptingoneby theend of2004.
c. Interpretthe intervalsin (a) and(b).
d. Discussthe effect on the confidenceintervalestimate
whenyou changethe levelofconfidence.
300 CHAPTER EIGHT ConfidenceIntervalEstimatron

collection to ensure that the confidence interval is narrow enough to be useful in making
decisions. Determining the proper sample size is a complicated procedure,subject to the
constraints of budget, time, and the amount of acceptable sampling error. In the Saxon
Home Improvement example, you want to estimate the mean dollar amount of the sales
invoices,you must determine in advancehow large a sampling error to allow in estimating
the population mean. You must also determine in advancethe level of confidence (that is,
90%,95%, or 99oh)to use in estimatingthe population pa'rameter.

Sample Size Determination for the Mean

To develop an equation for determining the appropriatesample size neededwhen constructing
a confidenceintervalestimateof the mean,recall Equation(8.1) on page287:

o
+ z _T
X
"\ln

l ln this context, some The amount added to or subtractedfrom X is equal to half the width of the interval. This
statisticiansrefer to e as quantity representsthe amountof imprecisionin the estimatethat results from sampling error.
r.l
the "margin of error." T h e s a m p l i n ge r r o r . ' e . i s d e f i n e da s

o
_T
e=Z
1n

Solving for r gives the sample size needed to construct the appropriate confidence interval
'Appropriate"
estimatefor the mean. means that the resulting interval will have an acceptable
amount of sampling error.

SAMPLESIZEDETERMINATION
FOR THE MEAN
The samplesize,n, is equalto the productof the Z valuesquaredandthe variance,
o, squared,dividedby the squareof the samplingerroq e,

22o2
n-""}:-
I
(8.4)
e

FIG
2YouuseZ insteadof t To determine the sample size, you must know three factors: Micr
won
because,to determine the
1. The desired confidence level, which determinesthe value of Z, the critical value from the dete
criticalvalue of t, you need
s t a n d a r d i z endo r m a ld i s t r i b u t i o n 2
for e
to know the samplesize,but saleJ
you do not know it yet. For 2. The acceptablesampling error, e
for t
most studies, the sample size 3. The standarddeviation,o lmpr
neededis large enough that
l=
the standardizednormal In some business-to-businessrelationships that require estimation of important parame-
distributionis a good ters, legal contracts specify acceptablelevels of sampling error and the confidence level lG
h
approximation of the required. For companiesin the food or drug sectors,governmentregulationsoften specify See I
t distribution. sampling errors and confidence levels. In general, however, it is usually not easy to specify this.
 8 . 4 :D c t c r n r i n i S
n sa r r o lS
c izc 301

the two factorsneededto determinethe samplesize.How can you determinethe level of corr-
fidence and sarnplingerror?Typically,thesequestionsare answeredonly by the subjectmat-
ter expert(that is, the individual most farniliar with the variablesunder study).Although 95%
is the most common confidencelevel used,if rnore confidenceis desired"then 99%,rnight be
more appropriate;if less confidenceis deemedacceptable,then 90%,uright be used.For the
samplingerror, you shouldthink not of how much samplingerror you would like to have(you
really do not want any error) but of how much you'can toleratewhen drawing conclusions
from the data.
In additionto specifyingthe confidencelevel and the sarnplingerror,you needan estimate
of the standarddeviation.Unfortunately,you rarely know the populationstandarddeviation,o.
In some instances,you can estimatethe standarddeviationfrom past data.In other situations,
you can make an educatedguessby taking into accountthe rangeand distributionofthe vari-
able. For example,if you assumea normal distribution,the rangeis approximatelyequalto 6o
(that is, +3o aroundthe mean) so that you estimateo as the rangedivided by 6. If you cannot
estintateo in this way,you can conducta small-scalestudy and estimatethe standarddeviatiorr
f r o r nt h e r e s u l t i u gd a l a .
To explore how to determinethe samplesize neededfor estirnatingthe populationmean,
consideragainthe audit at SaxortHome lmprovement.In Section8.2, yoLrselecteda sampleof
100 salesinvoicesand constructeda 95o/oconfidenceintervalestimateof the populationrnearr
salesinvoice amount.How was this samplesize detennined?Should you have selecteda dif-
ferentsamplesize'/
Supposethat, after consultationwith company officials, you determinethat a sarnpling
e r r o r o f n o m o r e t h a n + $ 5 i s d e s i r e d ,a l o n g w i t h 9 5 o l c o n f i d e n c e .P a s td a t a i n d i c a t et h a t
t h e s t a n d a r dd e v i a t i o no f t h e s a l e sa r n o u n ti s a p p r o x i m a t e l y$ 2 5 . T h u s , e : $ 5 , o - $ 2 5 , a n d
Z : | . 9 6 ( f o r 9 5 o hc o n f i d e n c e ) .U s i n g E q u a t i o n( 8 . 4 ) ,

22o2 ( I . 9 6) 2( 2 5 ) 2

e- (5)"

= 96.04

Becausethe generalrule is to slightly oversatisfythe criteriaby roundingthe samplesize

up to the next whole integer,you should selecta sampleof size 97. Thus, the sampleof 100
usedon page292 is closeto what is necessaryto satisfythe needsof the company,basedon the
estimatedstandarddeviation,desiredconfidencelevel, and samplingerror. Becausethe calcu-
lated samplestandarddeviationis slightly higher than expecte4 $28.95 comparedto $25.00,
the corrfidenceinterval is slightly wider tharrdesired.Figure 8. I I illustratesa Microsoft Excel
worksheetto determinethe samnlesize.

FIGUR8
E. 1 1
MicrosoftExcel
worksheetfor I
determiningsamplesize 2
3
torestimatingthe mean 4
salesinvoiceamount q
forthe SaxonHome 6
improvement Company 7

Le-
t-r ct
I -NORTS[{V(l- 86}21
t--t 10 -((89'B4)/85r2
/el ul 11
fv SeeSectionEB.4to create tz
;; -ROUr{DUP(810,
0}
ifv mls. IJ
302 CHAPTER EIGHT Confidence Interval Estimatron

Example 8.5 illustratesanotherapplicationof determiningthe samole size neededto

develooa confidenceinterval estimatefor the mean.

E X A M P L E8 . 5 DETERMININGTHE SAMPLESIZEFOR THE MEAN

Returningto Example8.3 on page293, suppose.you want to estimatethe populationmean
force requiredto breakthe insulatorto within +25 poundswith 95% confidence.On thebasis
ofa studytakenthe previousyear,you believethat the standarddeviationis 100pounds.Find
the samplesizeneeded.
SOLUTION Using Equation(8.4) on page300 and e : 25, o : 100, andZ : for 95%
confidence,

z2o2 (1.e6)2(loo)2
'n- = -
e2 Q'2

Therefore,you shouldselecta samplesizeof 62 insulatorsbecausethe generalrule for deter-

mining samplesizeis to alwaysround up to the next integervalue in orderto slightly oversat-
isfy thecriteriadesired.
An actualsamplingerror slightly largerthan25 will resultif the samplestandarddeviationcal-
culatedin this sampleof 62 is greaterthan 100andslightlysmallerif the samplestandard devi-
ationis lessthan 100.

Sample Size Determination for the Proportion

So far in this section,you havelearnedhow to determinethe samplesizeneededfor est
the populationmean.Now supposethat you want to determinethe samplesize necessary for
estimatingthe proportionof salesinvoicesat SaxonHome Improvementthat containerrors.
To determinethe samplesize neededto estimatea population proportion, fi, you use
methodsimilar to the methodfor a populationmean.Recallthat in developingthe sample
for a confidenceinterval for the mean,the samplingerror is definedby

o
-T
e=Z
"ln

Whenestimatinga proportion,you replaceo with 1G(1- ) Thus,the samplingerroris

"
n(l- n)
n

Solving for n, you havethe samplesizenecessaryto developa confidenceintervalestimate

a proportion.

SAMPLESIZE DETERMINATIONFOR THE PROPORTION

The samplesizer is equalto theZvalne squaredtimesthe populationproportion,r, times
minusthe populationproportion,n, dividedby the squareof the samplingerror,e,

Z2n(l - n)
,= (8.s)
",
 8.4:Determining
Sample
Size 303

To determinethe samplesize,you must know threefactors:

1. The desiredconfidencelevel, which determinesthe value of Z, the critical value from the
standardizednormal distribution
2. The acceptablesamplingerror,e
3. The populationproportion,n

In practice,selectingthesequantitiesrequiressomeplanning.Onceyou determinethe
desiredlevel of confidence,you can find the appropriateZ valuefrom the standardized normal
distribution.The samplingerror,e, indicatesthe amountof error that you arewilling to tolerate
in estimatingthe populationproportion.The third quantity,n, is actuallythe populationparu-
meterthat you want to estimate!Thus,how do you statea valuefor what you aretaking a sam-
ple in orderto determine?
Hereyou havetwo alternatives.In many situations,you may havepastinformationor rele-
vant experiencethat providean educatedestimateof n. Or, if you do not havepastinformation
or relevantexperience,you cantry to providea value for a that would neverunderestimatethe
samplesize needed.Referring to Equation (8.5), you can seethat the quantity n(l - ru)
appearsin the numerator.Thus,you needto determinethe value of n that will makethe quan-
tity n(l - n) as largeas possible.When n : 0.5, the productn(l - n) achievesits maximum
result.To showthis, severalvaluesof n, alongwith the accompanyingproductsof a(l - n), are
as follows

Whenn : 0.9,thenn(l - n): (0.9X0.1): 0.09

Whenn: 0.7,thenn(l - n) : (0.7X0.3)
:0.21
Whenn : 0.5,thenn(l - n): (0.5X0.5):0.25
Whenn : 0.3,thenn(l - n): :0.21
(0.3X0.7)
W h e nn : 0 . 1 , t h e nn ( 1- n): (0.1)(0.9):0.09

Therefore,whenyou haveno prior knowledgeor estimateof the populationproportion,n,

you shoulduse7r: 0.5 for determiningthe samplesize.This producesthe largestpossiblesam-
ple sizeandresultsin the highestpossiblecostof sampling.Using ru: 0.5 may overestimate the
samplesizeneededbecauseyou usethe actualsampleproportionin developingthe confidence
interval.You will get a confidenceintervalnarrowerthan originally intendedif the actualsam-
ple proportionis differentfrom 0.5. The increasedprecisioncomesat the cost of spending
more time and moneyfor an increasedsamplesize.
Returning to the SaxonHome ImprovementUsing Statisticsscenario,supposethat the
auditingproceduresrequireyou to have 95%o confidencein estimatingthe populationpropor-
tion of salesinvoiceswith errorsto within +0.07.The resultsfrom pastmonthsindicatethat
the largestproportionhasbeenno morethan0.15.Thus,usingEquation(8.5)on page302 and
e : 0 . 0 7 , n : 0 . 1 5 , a n d Z : 1 . 9 6 f o r 9 5 %c o n f i d e n c e .

Z2n(l - n)

"2
( 1.e6) 2( 0.1sxO.s5)
(0.07)"
= 99.96

Becausethe generalrule is to round the samplesize up to the next whole integerto slightly
oversatisfiithe criteria,a samplesizeof 100is needed.Thus,the samplesizeneededto satisf,i
the requirementsof the company,basedon the estimatedproportion,desiredconfidencelevel,
and samplingerror,is equalto the samplesizetakenon page297.The actualconfidenceinter-
val is narrowerthan requiredbecausethe sampleproportionis 0.10,while 0.l5 wasusedfor n
in Equation(8.5).Figure8.12showsa Microsoft Excel worksheetfor determiningsamplesize.
 304 CHAPTEREIGHT ConfidenceIntervalEstimation

FIGURE8.12 A B
or thc Proportlon of InInor Salcr Invrlecl
MicrosoftExcel
worksheetfor Dd
determining sample 4 I|md. ofTru. ProDofdon 0.rl
unlllno Enor
sizefor estimatingthe 6 funcr Lrvrl
proportionof sales 7
invoiceswith errors I lnlermedietoCalculalions
I ! Value 1 -lloRxsfirv(l - Bs]n]
for the SaxonHome t0 CelculatedSamolaSize -(89^2. Bf. (1 - B4D/85^2
lmprovementCompany tl
t-l t3 r Slr. -ROUI{DUP(810,0)
I\N7T
I-ll
E

See Section E8.5 to create Example8.6 providesa secondapplicationof determiningthe samplesize

this.
the populationproportion.

EXAMPLE 8.6 DETERMINING

THESAMPLESIZEFORTHEPOPULATION
PROPORTION
Youwantto have90%confidence theproportionof officeworkerswho
of estimating
to email within an hour to within +0.05. Becauseyou havenot previouslyundertakensuch
study,thereis no informationavailablefrom pastdata.Determinethe samplesizeneeded.
SOLUTION Becauseno informationis availablefrom pastdata,assumethatn: 0.50.Usi
Equation(8.5)on page302 ande :0.05, n : 0.50,andZ : 1.645for 90% confidence,

(1.645)',(0.50X0.s0)
(0.05)2
= 270.6

Therefore,you needa sampleof 27| office workersto estimatethe populationproportion

within +0.05with 90% confidence.

Learningthe Basics that the populationproportionis approximately0.40,what

samplesizeis needed?
@ 8.34 If you want to be 95%oconfidentof esti-
lAsslsr I matingthepopulationmeanto within a sampling Applying the Concepts
error of +5 andthe standarddeviationis assumed
to be 15,whatsamplesizeis required? 8.38 A surveyis plannedto determinethe mean
annualfamily medicalexpensesof employees of
8.35 If you want to be 99o/oconfidentof esti-
a large company.The managementof the com-
matingthe populationmeanto within a sampling
pany wishesto be 95ohconfident that the samplemeanis
error of +20 and the standard deviation is
correctto within +$50 of the populationmeanannualfam-
assumedto be 100,what samplesizeis required?
ily medicalexpenses. A previousstudy indicatesthat the
8.36 If you want to be 99Yoconfidentof esti-
ffi mating the populationproportion to within an
errorof t0.04,what samplesizeis needed?
standarddeviationis approximately$400.
a. How largea samplesizeis necessary?
b. If managementwantsto be correctto within +$25,what
samplesizeis necessary?
8.37 If you want to be 95o/oconfidentof esti-
ffi mating the populationproportion to within an
error of +0.02 and thereis historicalevidence
8.39 If the managerof a paint supply storewantsto esti-
matethe meanamountof paint in a l-gallon can to within

with95% confidenceand also assumesthat
deviationis 0.02 gallon.what samplesize is
a quality control managerwants to estimatethe
of light bulbsto within +20 hourswith 95% con-
alsoassumes thatthepopulationstandarddevi-
100hours,what samplesizeis needed?
If the inspectiondivision of a county weights and
departmentwants to estimatethe mean amount
soft-drinkfill in 2-liter bottlesto within +0.01 liter with
confidenceand also assumesthat the standarddevia-
is 0.05liter,whatsamplesizeis needed?
8.42 A consumergroup wantsto estimatethe
meanelectric bill for the month of July for sin-
gle-familyhomesin a largecity. Basedon studies
in othercities,the standarddeviationis assumed
be $25.The group wants to estimatethe meanbill for
to within+$5 with 99% confidence.
Whatsamplesizeis needed?
lf 95% confidenceis desired,what samplesize is
necessarv?
An advertisingagencythat servesa major radio sta-
wantsto estimatethe meanamountof time that the sta-
audiencespendslisteningto the radio daily.Frompast
ies,the standarddeviationis estimatedas45 minutes.
Whatsamplesize is neededif the agencywantsto be
90%confidentof being correctto within +5 minutes?
If 99% confidenceis desired,what samplesize is
necessary?
A growing niche in the restaurantbusinessis
breakfast,lunch,andbrunch.Chainsin this
includeLe Peep,Good Egg, Eggs& I, First Watch,
EggsUp Grill. The meanper-personcheckfor First
is approximately$7, and the meanper-personcheck
Eggs Up Grill is $6.50. (Extractedfrom J. Hayes,
ition HeatsUp asBreakfastConceptsEyeGrowth,"
b Restaurant News,April 24,2006,pp. 8, 66.)
Assuminga standarddeviationof $2.00,what sample
sizeis neededto estimatethe meanper-personcheckfor
GoodEggto within $0.25with 95% confidence?
Assuminga standarddeviationof $2.50,what sample
sizeis neededto estimatethe meanper-personcheckfor
GoodEggto within $0.25with 95% confidence?
Assuminga standarddeviationof $3.00,what sample
sizeis neededto estimatethe meanper-personcheckfor
GoodEggto within $0.25with 95% confidence?
Discussthe effect of variation on selectingthe sample
sizeneeded.
The U.S. Departmentof Transportationdefinesan
ineflight asbeing"on time" if it landslessthan 15min-
afterthe scheduledtime shownin the carrier'scomput-
8.4:Determining
Sample
Size 305
eized reservationsystem.Cancelledand diverted flights
are countedas late.A studyof the l0 largestU.S.domes-
tic airlines found SouthwestAirlines to havethe lowest
proportion of late arrivals,at 0.1577 (Extractedfrom
N. Tsikriktsisand J. Heineke,"The Impact of Process
Variationon CustomerDissatisfaction:Evidencefrom the
U S. Domestic Airline lndustry,"Decision Sciences,Winter
2004,35(l),pp.129-142).Suppose you wereaskedto per-
form a follow-up study for SouthwestAirlines in order to
updatethe estimatedproportionof late arrivals.What sam-
ple size would you use in order to estimatethe population
proportionto within an error of
a. +0.06with95ohconfidence?
b. +0.04 with95o/oconfidence?
c. +0.02 with95o/oconfidence?
8.46 In 2005, 34ohof workersreportedthat their jobs
were more difficult, with more stress,and37%oreported
that they worry aboutretiring comfortably.(Extractedfrom
S. Armour, " Money WorriesHinder Job Performance,"
USAToday,October5,2005,p. Dl). Considera follow-up
studyto be conductedin the nearfuture.
a. What samplesize is neededto estimatethe population
proportionof workerswho reportedthat theirjobs were
more difficult, with more stress,to within +0.02 with
95% confidence?
b. What samplesize is neededto estimatethe population
proportion of workerswho worried aboutretiring com-
fortably to within +0.02 with 95% confidence?
c. Comparethe resultsof (a) and (b). Explain why these
resultsdiffer.
d. If you wereto designthe follow-up study,would you use
one sampleand ask the respondentsboth questions,or
would you selecttwo separatesamples?Explain the
rationalebehindyour decision.
8.47 What proportion of people hit snagswith online
transactions?According to a poll conductedby Harris
Interactive,89% hit snagswith online transactions("Top
Online TransactionTrouble," USA TodaySnapshots,April
4,2006,p.lD).
a. To conducta follow-up study that would provide 95%
confidencethat the point estimateis correctto within
+0.04 of the populationproportion,how large a sample
sizeis required?
b. To conducta follow-up study that would provide 99%
confidencethat the point estimateis correctto within
+0.04 of the populationproportion,how largea sample
sizeis required?
c. To conduct a follow-up study that would provide 95%
confidencethat the point estimateis correctto within
+0.02 of the populationproportion,how large a sample
sizeis required?
d. To conduct a follow-up study that would provide 99oh
confidencethat the point estimateis correct to within
306 CHAPTER EIGHT ConfidenceIntervalEstimatron

+0.02of the populationproportion,how largea sample
sizeis required?
e. Discussthe effectsof changingthe desiredconfidence
level and the acceptable
samplingerror on samplesize
requirements.
8.48 A poll of 1,286youngadult cell phoneuserswas
conductedin March 2006.Thesecell phoneusers,aged
78-29,wereactivelyengagedin multipleusesof their cell
phones.The datasuggestthat 707 took still pictureswith
their phones,604 playedgames,and 360 usedthe Internet
(Extracted from "Poll: CellphonesAre Annoying but
Invaluable,"usatoday.com, April 3,2006). Constructa
95%confidenceintervalestimateof thepopulationpropor-
tion of youngadultsthatusedtheir cell phoneto
a. takestill pictures.
b. play games.
c. usethe Internet.
d. You havebeenaskedto updatethe resultsofthis study,
Determinethe samplesize necessary to estimatethe
populationproportionsin (a)through(c) to within +0.02
with 95o/o
confidence.
8.49 A studyof 658 CEOsconductedby the Conference
Board reportedthat 250 statedthat their company'sgreat-
est concern was sustainedand steadytop-line growth
("CEOs' GreatestConcerns,"USA TodaySnapshots, May
8 , 2 0 0 6p, . 1 D ) .
a. Constructa 95ohconfidenceintervalfor the proportion
of CEOs whosegreatestconcernwas sustained and
steadytop-linegrowth.
in (a).
b. Interpretthe intervalconstructed
c. To conducta follow-upstudyto estimatethe population
proportionof CEOs whosegreatestconcernwassus-
tainedand steadytop-linegrowthto within +0.01with
95% confidence,how manyCEOswouldyou survey?

8.5 APPLICATIONSOF CONFIDENCEINTERVAL

ESTIMATIONIN AUDITING
This chapterhasfocusedon estimatingeitherthe populationmeanor the populationpropor-
tion. In previouschapters,you have studiedapplicationto differentbusinessscenarios.
Auditing is one of the areasin businessthat makeswidespreaduse of probabilitysampling
methodsin orderto constructconfidenceintervalestimates.

AUDITING
Auditing is the collectionand evaluationof evidenceaboutinformationrelatingto an
economicentity,suchas a solebusinessproprietor,a partnership,a corporation,or a
governmentagency,in orderto determineand report on how well the information
t,
iorrespondsto establishedcriteria.

Auditorsrarelyexaminea completepopulationof information.Instead,they rely on esti-

mationtechniques basedon theprobabilitysamplingmethodsyou havestudiedin thistext.The
followinglist containssomeof the reasonssamplingis advantageous
to examiningthe entire
population.
. Sampling is lesstimeconsuming.
' Samplingis lesscostly.
. Samplingprovidesresultsthat are objectiveand defensible.Becausethe samplesizeis
basedon demonstrable statisticalprinciples,the audit is defensiblebeforeone'ssuperion
and in a court of law.
. Samplingprovidesan objectiveway of estimatingthe samplesizein advance.
' Samplingprovidesan estimateof the samplingerror.
' Samplingis often more accuratefor drawingconclusionsaboutlargepopulationsthan
othermethods.Examininglargepopulationsis time-consuming andthereforeoftensubject
to morenonsamplingerrorthanstatisticalsampling.
. Samplingallowsauditorsto combine,andthenevaluatecollectively,samplescollected by
differentindividuals.
r Samplingallowsauditorsto generalize their findingsto the populationwith a knownsam-
pling error.
 8.5: Applicationsof ConfidenceIntervalEstimationinAuditing 307

Estimatingthe PopulationTotalAmount
In auditing applications,you are often more interestedin developing estimatesof the popula-
tion total amount than the population mean. Equation (8.6) shows how to estimate a popula-
tion total amount.

ESTIMATING THEPOPULATION TOTAL

Thepointestimate
for thepopulation
totalis equalto thepopulationsize,N, timesthe
samplemean.
Total = NX (8.6)

Equation(8.7)definesthe confidenceintervalestimatefor the populationtotal.

CONFIDENCEINTERVALESTIMATEFOR THE TOTAL

rvx+uu ) ': .8: '

" " --, (8.7)
^ l nY N - l

To demonstratethe applicationof the confidenceinterval estimatefor the populationtotal

amount,returnto the SaxonHomeImprovement Using Statisticsscenarioon page284.Oneof
the auditingtasksis to estimatethe total dollar amountof all salesinvoicesfor the month.If
thereare5.000invoicesfor thatmonthand x = $ | 10.27.thenusingEquation(8.6).

ryX = (5,000X$l
10.27)= $551,350

If n : 100andS: $28.95,thenusingEquation(8.7)with tnr: 7.9842for 95o/o

confidence,

,c N-n too
NX + N(tntl:- =55r,350
t (s,000x1.e
84D?J-/t'999
'
"ln N-1 ./tOO1 5,000- I
= 551,350+ 28,721.295(0.99005)
= 551,350
+ 28,436
$522,914< Population
total < $579,786

Therefore,with95o/o you estimatethatthetotalamountof salesinvoicesis between

confidence,
and
$522,914 $579,786. Figure8.13showsa MicrosoftExcelworksheetfor thesedata.

8.13
TolalAmounl of All SalosInvoicet
Excel a

for the 3 Data

intervaI 4 PopulodonShe
ofthetotal 5 amph teln fio^2l
6 Stmple Slze ilx
of all invoices StmDlG Standard Devla$on 2SJl
Home
Saxon B fonffd**a Lsval 95t{
Company s
1B IntermediatsCalcularioffi
t l rooulalionTotal 551358.tX*84 " 85
t2 'PCFactor 0.9s[ -sQRr(Fi-B6)r{81-l}t
1 3 itandard Enor of ths Toial -tB{. 87" 812ySORTtB6l
t d eqreesof Freedom 9g - 8 6 - t
E8.6to create 1 5 Value I 54: -illlvtt -m,814)
l6 r*srYalHafWidih m1x.7t -Bl5 * 813
17
18 Confidencelntcrval
1 S $tsffal Lowcr Llmlt 5,7,311Jf, -811- 816
nlsrvrl Uoosr Llmlt 5797&t.72 -Sl1 + 316
308 CHAPTER EIGHT ConfidenceIntervalEstimation

Example8.7 furtherillustratesthe populationtotal.

E X A M P L E8 . 7 DEVELOPINGA CONFIDENCEINTERVALESTIMATE
FOR THE POPULATIONTOTAL
An auditoris facedwith a populationof 1,000vouchersandwantsto estimatethe total value
the populationof vouchers.A sampleof 50 vouchersis selected,
with the followingresults:

Meanvoucheramount(X ) = $1.076.39
Standarddeviation(S) =$2'73.62

Constructa95o/oconfidenceintervalestimateof the total amountfor thepopulationof

SOLUTION UsingEquation(8.6)on page307,thepoint estimateof the populationtotalis

7try = (1,000)(1,07
6.39)= $1,076,390

From Equation(8.7) on page307,a 95% confidenceintervalestimateof the population

amountis

( 1.000x I ( 1.000x2.0
1,076.39) ogol2J3fr

= 1,076,390
+ 77,762.878
(0.97517)
= 1,076,390
+ 75,832
< Population
$1,000,558 total < $1,152,222

Therefore,with95o/oconfidence,you estimatethat the total amountof the vouchersis

$ 1,000,558and$ l,l 52,222.

DifferenceEstimation
An auditorusesdifferenceestimationwhenhe or shebelievesthaterrorsexistin a setof
and he or shewantsto estimatethe magnitudeof the errorsbasedonly on a sample.The
lowing stepsareusedin differenceestimation:
l . Determinethe samplesizerequired.
, Calculatethe differencesbetweenthe valuesreachedduring the audit and the original
uesrecorded.The differencein valuei, denotedD,, is equalto 0 if the auditorfindsthat
original value is correct,is a positivevaluewhen the auditedvalueis largerthanthe
nal value,and is negativewhenthe auditedvalue is smallerthanthe original value.
3. Computethe meandifferencein the sample,D,by dividing the total differenceby
samplesize,as shownin Equation(8.8).

MEAN DIFFERENCE

2o,
D-t=t (8.8)
n
whereD, : Audited value- Original value
 8.5: Applicationsof ConfidenceInterval Estimationin Auditing 309

4. Computethe standarddeviationof the differences,Sr, as shownin Equation(8.9).

Rememberthat any item that is not in error has a dilferencevalueof 0.

STANDARD
DEVIATION
OF THE DIFFERENCE

Sr-^ :.,
L(ui-Dr
i=l
SD= (8.e)
n-l

5. Use Equation(8.10)to constructa confidenceintervalestimate of the total difference in

thepopulation.

INTERVAL
CONFIDENCE E STIMATE
FORTHETOTALDIFFERENCE
.s^ffi;
N D + N ( t 'n ) l # " , l - (s.10)
4 n \ lN - l

The auditingprocedures for SaxonHomeImprovement requirea 95o/o

confidenceinterval
estimateof the differencebetweenthe actualdollar amountson the salesinvoicesand the
amountsenteredinto the integratedinventoryand salesinformationsystem.Supposethat in a
sampleof 100 salesinvoices,you have 12 invoicesin which the actualamounton the sales
invoiceandthe amountenteredinto the integratedinventorymanagement and salesinforma-
tion systemis different.Thesel2 differences(storedin the file[[@fift!) are

$9.03 $1.41 $17.32 $8.30 $s.21 $ r 0.80 $6.22 $5.63 $4.97 $7.43 52.99 54.63

The other88 invoicesarenot in error.Theirdifferencesareeach0. Thus,

i,,
-eo
D-t=t ='" =0.90
n 100
numerator,there and3
differences.Each
last88
areequal n
0.eF -D)'
\tn,
;-l
SD=
,-l

(9.03- 0.9)2+ (7.47- 0.9)2+ ... + (0 - 0.9)2

Sn = 2'752

Using Equation(8.10),constructthe95Voconfidenceinterval estimatefor the total differ-

ence in the population of 5,000 salesinvoices as follows:

(s,000)(0.90)
r (s,000x1
.s84D2+
= 4 , 5 0 0+ 2 , 7 0 2 . 9 1

51,197.09< Total difference < $'7,202.91

3 10 CHAPTER EIGHT ConfidenceIntervalEstimation

Thus,the auditorestimateswith 95o/oconfidencethat the total differencebetweenthe sales

invoices,as determinedduringthe audit andthe amountoriginally enteredinto the account-
ing systemis between$1,797.09and$7,202.91. Figure8.14showsan Excelworksheet for
thesedata.

FIGURE8.14
otal DlfforcnceIn Acfual lnd Enter.d
MicrosoftExcel
worksheetfor the tota
differencebetweenthe
invoiceamountsfound
duringauditand the
amountsenteredinto
the accountingsystem -SUl{olficrencod).t!!AAl
-80/85
for the SaxonHome -Ba'B!0
lmprovement Company -SARTGl6)
-saRT{(Bl -85}/(8r - ll}
-F4 - 812'8lrySQRT(Fq
-B!t - |
-Tll{\t(l - 86, 815}
-815'Bll
See Section E8.7 to create
this.
- 8 1 1. 8 1 7
-B1l + 817

In the previousexample,all 12 differencesarepositivebecausethe actualamounton the

salesinvoiceis more than the amountenteredinto the accountingsystem.In somecircum-
stances,you couldhavenegativeerrors.Example8.8 illustratessucha situation.

E X A M P L E8 . 8 DIFFERENCE
EST]MATION
Returningto Example8.7 on page308,supposethat 14vouchersin the sampleof 50 vouchers
containerrors.The valuesof the 14 errorsare listedbelow and storedin the file !@@.
Observethat two differencesarenesative:

$75.41 $38.97 $108.54-$37.18 $62.7s $l18.32 -$88.84

$r27.74 $s5.42 $39.03 $29.4r $47.99 $28.73 $84.05

Constructa 950/oconfidenceinterval estimateof the total differencein the populationof 1,000

vouchers.
SOLUTION For thesedata,

tr,
: ?i =
6e0.34
=13.8068
D-'='
n50

-
)j = to, D)'
I
SD=
n-l

) 2( 3 8 . 9 7- 1 3 . 8 0 6 8 +
(75.4r- 13.8068+ ) 2' . ' + ( 0 - 1 3 . 8 0 6 8 ) 2

= 37.427
-]

iI 8.5: Applications Interval

of Confidence Estinration
in Auditing 3 I 1

Using Equation(8. l0) on page309, constructthe confidenceintervalestirnatefor the total dif-

I
j
ferencein the population as follows:

( 1,000x ) lg
+(1,000)(2.0096
l 3.8068)

= 13,806.8
+ 10,372.4
< Totaldifference< 524,179.20
$3,434.40

Therefore, with 95o/oconfidence, you estimate that the d i f f e r e n c ei n t h e p o p u l a t i o no f

vouchersis between 53.434.40 and524.179.20.

One-SidedConfidence Interval Estimation of the

Rate of Noncompliancewith Internal Controls
Organizationsuse internal control mechanismsto ensurethat individuals act in accordance
with company guidelines. For example, Saxon Home Improvement requiresthat an authorized
warehouse-removalslip be completed before goods are removed from the warehouse.During
the monthly audit of the company,the auditing team is chargedwith the task of estimating the
proportion of times goods were removedwithout proper authorization.This is referred to as the
rate of nonc'ompliancewith the internal c'ontrol.To estimate the rate of noncompliance,audi-
tors take a random sample of salesinvoices and determine how often merchandisewas shipped
without an authorized warehouse-removalslip. The auditors then compare their results with a
previously establishedtolerable exception rate, which is the maximum allowable proportion of
items in the populationnot in compliance.When estimatingthe rate of noncompliance,it is
commonplace to use a one-sided confidence interval. That is, the auditors estimate an upper
bound on the rate ofnoncompliance.Equation(8.1I ) definesa one-sidedconfidenceinterval
for a proportion.

ONE-SIDED
CONFIDENCE
INTERVAL
FORA PROPORTION
- p+Z p(t - p)
Upperbound (8.11)
n
where Z : the value corresponding to a cumulative area of ( I - cr) from the standardized
normal distribution (that is, a right-hand tailprobability of a).

Ifthe tolerableexceptionrate is higher than the upperbound"the auditorconcludesthat the

company is in compliance with the internal control. If the upper bound is higher than the toler-
able exception rate, the auditor concludesthat the control noncompliancerate is too high. The
auditor may then requesta larger sample.
Supposethat in the monthly audit, you select 400 sales invoices from a population of
10,000invoices.In the sampleof 400 salesinvoices,20are in violation of the internalcontrol.
If the tolerableexceptionrate for this internalcontrol is 6%, what shouldyou conclude?Use a
95o/olevel of confidence.
The one-sidedconfidenceinterval is cornputedusingp :201400 - 0.05 and Z: 1.645.
U s i n g E q u a t i o n( 8 . 1I ) ,

= 0 . 0 5+ 1 . 6 4 5 ( 0 . 0 1 0 9 X 0=. 908. )0 5+ 0 . 0 1 7 6= 0 . 0 6 7 6
312 CHAPTEREIGHT ConfidenceIntervalEstimation

Thus,you have95o/o confidencethatthe rateof noncompliance is lessthan6.76%.Because

tolerableexceptionrateis 6Vo,the rateof noncompliancemay be too high for this internal
trol. In otherwords,it is possiblethat the noncompliancerate for the populationis higher
the rate deemedtolerable.Therefore,you shouldrequestalarger sample.
In manycases,the auditoris ableto concludethat the rateof noncompliancewith the
pany'sinternalcontrolsis acceptable.Example8.9 illustratessuchan occurrence.

E X A M P L E8 . 9 ESTIMATING
THE RATEOF NONCOMPLIANCE
A largeelectronics
firm writesI millionchecksayear.An internalcontrolpolicyfor the
pany is that the authorizationto sign eachcheckis grantedonly after an invoicehasbeen
tialed by an accountspayablesupervisor.The company'stolerableexceptionrate for this
trol is 4%. If control deviationsare found in 8 of the 400 invoicessampled,what should
auditordo?To solvethis. usea95Yolevelofconfidence.
SOLUTION Theauditorconstructs a95Yoone-sidedconfidenceintervalfor the
invoicesin noncomplianceand comparesthis to the tolerableexceptionrate. Using
(8.11) on page3 I l, p : 81400: 0.02,andZ : 1.645for 95oloconfidence,

-
= 0.02+ 1.6450.02(l 0.02)

= 0.02+ 1.645(0.007X0.9998)
= 0.02+ 0.01l5 = 0.0315

Theauditorconcludes
with95%confidence
thattherateof noncompliance
is lessthan3.
Becausethis is less than the tolerableexceptionrate, the auditor concludesthat the i
controlcomplianceis adequate.In otherwords,the auditoris more thang5ohconfident
rateof noncompliance is lessthan4%.

Learningthe Basics Applying the Concepts

8.50 A sampleof 25 is selectedfrom a populationof 500
items.The samplemean is 25.7, andthe samplestandard
deviationis 7.8. Constructa99ohconfidenceintervalesti-
mateof the populationtotal.
8.51 Suppose that a sample of 200 (see the file
@ft@Q is selectedfrom a populationof 10,000items.
Of these,l0 items are found to haveerrors of the follow-
ing amounts:
13.76 42.87 34.65 I 1.09 14.54
22.87 25.52 9.81 10.03 15.49
Constructa 95o/oconfidenceinterval estimateof the total
differencein the population.
8.53 A stationery store wants to estimate the total
value of the 1,000greetingcardsit has in its inventory.
Constructa95%oconfidenceinterval estimateof the popu-
lation total value ofall greetingcardsthat are in inventory
if a randomsampleof 100 greetingcardsindicatesa mean
valueof $2.55and a standarddeviationof $0.44.
8.54 The personneldepartmentof a largecor-
poration employing3,000 workerswantsto esti-
matethe family dentalexpensesof its employees
to determinethe feasibility of providing a dentalinsurance
plan.A randomsampleof 10 employeesrevealsthe follow-
ing family dental expenses(in dollars) for the preceding
year(seethe!!S@ file):

8.52 If p: 0.04,n : 300,and N: 5,000,calculatethe
upper bound for a one-sidedconfidenceinterval estimate
of the populationproportion,7t,using the following levels
ofconfidence:
a.90o/o b. 95% c. 99o/o
ll0 362 246 85 510 208 173 425 316 r79
Constructa 90ohconfidenceinterval estimateof the total
family dental expensesfor all employeesin the preceding
yeat.
 8.6: ConfidenceIntervalEstimationand Ethical Issues 3 l3

A branchofa chainoflaree electronics storesis con- Sample Historical Audited Sample Historical Audited
ing an end-of-monthinventory of the merchandisein Number Cost ($) Value ($) Number Cost ($) Value ($)

Therewere 1,546items in inventoryat that time. A 5 261 240 60 21 2r0

of 50 itemswas randomlvselectedand an audit 987 105 73 140 r52
conducted, with the following results: 17 201 276 86 t29 tlz
t8 t2l ll0 95 340 2t6
Valueof Merchandise 28 315 298 96 341 402
35 4tl 356 107 135 97
X = 5252.28 ,S: $93.67 43 249 2tl ll9 228 220
a 95% confidenceintervalestimateof the total 51 216 305
ofthemerchandisein inventoryattheendof themonth. Constructa 95ohconfidenceinterval estimateof the total
A customerin the wholesalesarmenttrade is often populationdifferencein the historical cost and audited
to a discountfor a cashpaymentfor goods.The value.
of discountvariesby vendor.A sampleof 150items
8.58 Tom and Brent'sAlpine Outfittersconductan annual
fromapopulationof4,000 invoicesat the endofa
audit ofits financial records.An internalcontrolpolicy for
of time (seethe!@@file) revealedthat in 13
the companyis that a checkcan be issuedonly after the
thecustomerfailed to take the discountto which he
accountspayablemanagerinitials the invoice.The tolera-
shewasentitled.The amounts(in dollars)of the 13 dis-
ble exceptionrate for this internalcontrolis 0.04.During
thatwerenot takenwereasfollows:
an audit,a sampleof 300 invoicesis examinedfrom a pop-
t5.32 97.36 230.63 r04.18 84.92 132.76 ulation of 10,000invoices,and 1l invoicesare found to
t2 26.55 129.43 88.32 47.81 89.01 violatethe internalcontrol.
a. Calculatethe upperbound for a 95ohone-sidedconfi-
a 99ohconfidenceinterval estimateof the popu-
denceinterval estimatefor the rateof noncompliance.
totalamountof discountsnot taken.
b. Basedon (a),what shouldthe auditorconclude?
EconeDressesis a smallcompanythat manufactures
's dresses for saleto specialtystores.It has 1,200 8.59 An internal control policy for Rhonda'sOnline
items,and the historicalcost is recordedon a FashionAccessoriesrequiresa quality assurancecheck
in, first out (FIFO) basis.In the past,approximately before a shipmentis made.The tolerableexceptionrate
of the inventory items were incorrectly priced. for this internalcontrolis 0.05.During an audit,500 ship-
; any misstatements were usually not significant. ping recordswere sampledfrom a populationof 5,000
of 120itemswas selected(seethe@$ file), shippingrecords,and 12 were found that violatedthe
thehistoricalcost of eachitem was comparedwith the internalcontrol.
value.The resultsindicatedthat l5 items differed a. Calculatethe upperbound for a 95o/oone-sidedconfi-
ir historicalcostsand auditedvalues.Thesevalues denceintervalestimatefor the rateof noncompliance.
asfollows: b. Basedon (a),what shouldthe auditorconclude?

8.6 ESTIMATION
INTERVAL
CONFIDENCE AND ETHICAL
ISSUES
Ethicalissuesrelatingto the selectionof samplesandthe inferences that accompany themcan
occur in severalways.The major ethical issuerelatesto whetherconfidenceinterval estimates
areprovidedalongwith the samplestatistics.To providea samplestatisticwithout alsoinclud-
ing the confidenceinterval limits (typically set at 95o/o),thesamplesizeused,and an interpre-
tation of the meaningof the confidenceintervalin termsthat a laypersoncanunderstandraises
ethicalissues.Failureto includea confidenceintervalestimatemight misleadthe userof the
resultsinto thinking that the point estimateis all that is neededto predictthe populationchar-
acteristicwith certainty.Thus,it is importantthat you indicatethe intervalestimatein a promi-
nent place in any written communication,along with a simple explanationof the meaningof
the confidenceinterval.In addition,you shouldhighlightthe samplesize.
Oneof the mostcommonareaswhereethicalissuesconcerningestimationoccursis in the
publicationof the resultsof politicalpolls.Often,theresultsof the polls arehighlightedon the
314 IntervalEstimatron
CHAPTEREIGHT Confidence

front page of the newspapeq and the sampling error involved along with the methodology used
is printed on the page where the article is typically continued,often in the middle of the news-
paper.To ensurean ethical presentationofstatistical results,the confidence levels,samplesize,
and confidence limits should be made availablefor all surveysand other statisticalstudies.

8.7 o (CD-ROMTopiclESTIMATION
AND SAMPLESlzE
DETERMINATIONFOR FINITEPOPULATIONS
In this section,confidence intervals are developedand the sample size is determinedfor situa-
tions in which sampling is done without replacement from a finite population. For further dis-
cussion,seeE@EEEEUon the StudentCD-ROM that accompaniesthis book.

This chapter discussesconfidence intervals for estimating datafrom an auditto estimateimportantpopulationparame-

the characteristicsof a population, along with how you can ters suchas the total dollar amounton invoicesandthepro-
determine the necessarysample size. You learned how an portionof shipmentsmadewithout theproperauthorization.
accountantat Saxon Home Improvement can use the sample Table8.3providesa list oftopicscoveredin thischapter.

TABLE 8.3 Type ofData

Summary of Topics Tlpe ofAnalysis Numerical
in ChapterB
Confidenceinterval for Confidenceinterval estimate
a populationparameter for the mean(Sections8.1
and8.2)
Confidenceinterval
estimatefor the total and
the meandifference
(Section8.5)
Categorical
Confidenceinterval estimate
for theproportion(Section8.3).
One-sidedconfidenceinterval
estimatefor theproportion
(Section8.5)

To determinewhat equationto usefor a particularsitu-
ation,you needto askseveralquestions:
. Are you developinga confidenceinterval or are you
determiningsamplesize?
. Do you havea numericalvariableor do you havea cate-
gorical variable?
. Ifyou havea numericalvariable,do you know thepopu-
lationstandarddeviation?If you do, usethe normaldis-
tribution.If you do not,usethe t distribution.
The next four chaptersdevelopa hypothesis-testing
approachto makingdecisionsaboutpopulationparameten.

Confidence Interval for the Mean (o Known) Confidence Interval for the Mean (o Unknown)
o
X + Z -T=
,s
\ln T,
X -'* , <X+z* (8.1)
s.s
X-tn-t--r<tt<X+tn-'#
\ln tln .ln
 Chapter
ReviewProblems 315

Confidence
Interval Estimatefor the Proportion SampleSizeDeterminationfor the Mean
L.
22o2
P = zl!!!:-!)
\n
ll
-- ----=-

e' (8.4)

Sample SizeDetermination for the Proportion

p(r- p) < 1 r < p(r- p) Z2n(l - n)

p-Z p+z (8.3) (8.s)
n n e-

auditing 306 differenceestimation308 samplingerror 300

confidence intervalestimate 284 levelofconfidence 287 Student'sI distribution 290
criticalvalue 287 one-sidedconfidenceinterval 3l I total amount 307
degrees offreedom 290 point estimate 284

CheckingYour Understanding the nationalaverageof 900. After four weeks,the sample

8.60 Why can you neverreally have 100%confidenceof
conectlyestimatingthepopulationcharacteristic
of interest?
1 When do you use the / distributionto developthe
intervalestimatefor the mean?
Why is it true that for a given samplesize,n. an
in confidenceis achievedby widening(andmak-
precise)
less the confidenceinterval?
Underwhat circumstances do you use a one-sided
idenceinterval insteadof a two-sidedconfidence
When would you want to estimatethe population
insteadof thepopulationmean?
How doesdifferenceestimationdiffer from estima-
of themean?
the Concepts
Youwork in the corporateoffice for a nationwide
store franchisethat operatesnearly 10,000
The per-storedaily customercount has beensteady
900for sometime (thatis, the meannumberof customers
astorein onedayis 900).To increasethe customercount,
franchiseis consideringcuttingcoffeepricesby approx-
half.The l2-ouncesizewill now be $.59insteadof
, andthe 16-ounce sizewill be $.69insteadof $1.19.
with this reductionin price, the franchisewill havea
grossmargin on coffee.To test the new initiative,the
isehasreducedcoffeepricesin a sampleof 34 stores,
customercountshavebeenrunningalmostexactlyat
storesstabilizeat a meancustomercountof 974 and a stan-
dard deviationof 96. This increaseseemslike a substantial
amountto you, but it also seemslike a pretty small sample.
Is theresomeway to get a feel for what the meanper-store
countin all the storeswill be if you cut coffeepricesnation-
wide? Do you think reducingcoffeepricesis a good strat-
egy for increasingthe meancustomercount?
8.67 Companiesarespendingmoretime screeningappli-
cantsthan in the past.A study of 102 recruitersconducttld
by ExecuNetfound that 77 did Internetresearchon candi-
dates.(Extractedfrom P.Kitchen, "Don't Let Any 'Digital
Dirt'BuryYour JobProspects," Nousday,August21,2005,
p. A5e).
a. Constructa 95Voconfidenceinterval estimateof the
population proportion of recruiterswho do Internet
researchon candidates.
b. Basedon (a), is it correctto concludethat more than
70o/oofrecruitersdo Internetresearchon candidates?
c. Supposethat the study uses a sample size of 400
recruiters and 302 did Internet researchon candidates.
Constructa 95o/oconfidenceinterval estimateof the
population proportion of recruiterswho do Internet
researchon candidates.
d. Basedon (c), is it correctto concludethat more than
700/oof recrtiters do Internetresearchon candidates?
e. Discussthe effect of samplesize on your answersto
(a) through(d).
8.68 High-fructosecorn syrup(HFCS)wascreatedin the
1970sand is usedtodav in a wide varietvof foodsand
316 CHAPTER EIGHT ConfidenceIntervalEstimation
beverages. HFCS is cheaperthan sugarand is about75%
sweeterthansucrose.Someresearchers think that HFCSis
linkedto the growingobesityproblemin the UnitedStates
(Extracted from P. Lempert, "War of the Sugars,"
Progressive Grocer,April 15, 2006,p.20). The following
consumerviews are from a nationwidesurvevof 1.1l4
responses:
Viewson HFCS
Yes No
Are you concernedaboutconsumingHFCS? 80o/o20o/o
Do you think HFCSshouldbe banned
in foodsoldto schools? 88% 12%
Do you think HFCSshouldbe banned
inallfoods? 56% 44%
Constructa95o/oconfidenceintervalestimateof the popu-
lationproportionof peoplewho
a. areconcerned aboutconsumingHFCS.
b. think HFCSshouldbe bannedin food soldto schools.
c. think HFCSshouldbe bannedin all foods.
d. You are in chargeof a follow-up survey.Determinethe
samplesizenecessary to estimatethe proportionsin (a)
(c)
through to within +0.02 with 95oloconfidence.
8.69 StarwoodHotels conducteda surveyof 401 top
who play golf (Extractedfrom D. Jones,"Many
executives
CEOs Bend the Rules (of Golf)," USA Today,June26,
2002).Among the resultswerethe following:
. 329cheatat golf.
. 329 hateotherswho cheatat golf.
. 289believebusiness andgolfbehaviorparallel.
. 80 wouldlet a clientwin to getbusiness.
. 40 would call in sick to play golf.
Constructa 95o/oconfidenceintervalestimatefor eachof
thesequestions.Basedon theseresults,what conclusions
canyou reachaboutCEOs'attitudestowardgolfl
8.70 A marketresearcherfor a consumerelectronics
companywantsto studythe televisionviewing habitsof
residentsof a particular area.A random sampleof 40
respondents is selected,and eachrespondentis instructed
to keepa detailedrecordof all televisionviewingin a par-
ticularweek.The resultsareasfollows:
. Viewingtime per week: X = 15.3hours,.t: 3.8
hours.
. 27 respondents watchthe eveningnewson at least3
weeknights.
a. Constructa 95o/oconfidenceinterval estimatefor the
meanamountof televisionwatchedper week in this
city.
b. Constructa 95ohconfidenceinterval estimatefor the
populationproportionwho watchthe eveningnewson
at least3 weeknightsper week.
Supposethat the market researcherwants to take
anothersurveyin a differentcity.Answerthesequestions:
c. What samplesize is requiredto be 95o/oconfidentof
estimatingthe populationmeanto within *2 hoursand
assumes that the populationstandarddeviationis equal
to 5 hours?
d. What samplesize is neededto be 95o/oconfidentof
being within +0.035of the populationproportionwho
watchthe eveningnewson at least3 weeknightsif no
previousestimateis available?
e. Basedon (c) and (d), what samplesizeshouldthemar-
ket researcher selectif a singlesurveyis beingcon-
ducted?
8.71 The real estateassessorfor a county government
wants to study various characteristicsof single-family
housesin the county. A random sample of 70 houses
revealsthe following
. Heatedareaof the houses(in squarefeet): X = 1,759,
^s:380.
. 42 houseshavecentralair-conditioning.
a. Constructa 99o/oconfidenceinterval estimateof the
populationmeanheatedareaof thehouses.
b. Constructa 95o/oconfidenceinterval estimateof the
populationproportionof housesthat havecentralair-
conditioning.
8.72 Thepersonneldirectorof a largecorporationwishes
to study absenteeism amongclerical workersat the corpo
ration'scentraloffice during the year.A randomsampleof
25 clericalworkersrevealsthe following:
. Absenteeism: X = 9.7 days,S: 4.0days.
. l2 clericalworkerswereabsentmorethan l0 days.
a. Constructa 95o/oconfidenceinterval estimateof t
meannumberof absencesfor clerical workersduri
the year.
b. Construct a 95o/oconfidence interval estimate of the
populationproportionof clericalworkersabsent
than 10 daysduring the year.
Suppose thatthepersonneldirectoralsowishesto take
survey a branchoffice.Answerthesequestions:
in
c. What sample size is neededto have 95% confidencei
estimatingthe populationmeanto within +1.5days
the populationstandarddeviationis 4.5 days?
d. What samplesizeis neededto have90% confidence
estimatingthepopulationproportionto within +0.075
no previousestimateis available?
e. Basedon (c) and(d), whatsamplesizeis neededif a
gle surveyis beingconducted?
8.73 The marketresearchdirectorfor Dotfy's
Store wants to study women's spendingon
A surveyof thestore'screditcardholdersis designed
in
to estimatethe proportionof womenwho purchase

primarily from Dotty's DepartmentStore and the
yearlyamountthatwomenspendon cosmetics.A pre-
survevfoundthat the standarddeviationof the amount
spendon cosmeticsin a yearis approximately$ 18.
samplesizeis neededto have99o/oconfidenceof
imatingthe populationmeanto within +$5?
samplesize is neededto have 90% confidence
,-What
estimatingthe population proportion to within
.045?
on the resultsin (a) and (b), how many of the
's credit card holders should be sampled?
The branch managerof a nationwide bookstore
wantsto study characteristicsof her store'scus-
Shedecidesto focus on two variables:the amount
spentby customersand whetherthe customers
considerpurchasingeducationalDVDs relating to
preparationexams,such as the GMAT, GRE, or
. Theresultsfrom a sampleof 70 customersare as
Amountspent:X = $28.52,,S:$11.39.
28 customersstatedthat they would considerpur-
chasinsthe educationalDVDs.
a 95%oconfidenceinterval estimateof the
meanamountspentin the bookstore.
a 90% confidenceinterval estimateof the
Lonproportionof customerswho would consider
ine educationalDVDs.
that the branchmanaserof anotherstorein the
wantsto conduct a similar survey in his store.
thefollowing questions:
samplesize is neededto have95% confidenceof
ing the populationmean amount spent in his
to within +$2 if the standarddeviationis assumed
$10?
samplesizeis neededto have90% confidenceof
ing the populationproportionwho would con-
purchasingthe educational DVDs to within
,|
on your answersto (c) and (d), how large a sam-
shouldthe managertake?
The branchmanagerof an outlet (Store l) of a
chainof pet supply storeswantsto study char-
icsof her customers.In particular,shedecidesto
twovariables:the amountof moneyspentby cus-
andwhetherthe customersown only one dog, only
ormorethanonedog and/orcat.The resultsfrom a
of 70 customersare as follows:
t of moneyspent:X = $21.34,S:59.22.
customers own only a dog.
customersown only a cat.
mersown more than one dos and/or cat.
ReviewProblems 317
Chapter
a. Constructa 95ohconfidenceinterval estimateof the
populationmeanamountspentin the pet supplystore.
b. Constructa 90ohconfidenceinterval estimateof the
population proportion of customerswho own only a
cat.
The branchmanagerof anotheroutlet (Store2) wishes
to conducta similar surveyin his store.The managerdoes
not have accessto the information generatedby the man-
agerof Storel. Answerthe followingquestions:
c. What samplesizeis neededto have95% confidenceof
estimatingthe populationmean amount spentin his
storeto within +$1.50if the standarddeviationis $10?
d. What samplesize is neededto have90% confidenceof
estimatingthe populationproportion of customerswho
own only a cat to within +0.045?
e. Basedon your answersto (c) and (d), how large a sam-
ple shouldthe managertake?
8.76 The owner of a restaurantthat servescontinental
food wantsto study characteristics of his customers.He
decidesto focus on two variables:the amountof money
spentby customersand whethercustomersorderdessert.
The results from a sample of 60 customersare as
follows:
. Amountspent:X = $38.54,S=$7.26.
. l8 customerspurchaseddessert.
a. Constructa 95o/oconfidenceinterval estimateof the
population mean amount spent per customerin the
restaurant.
b. Constructa 90ohconfidenceinterval estimateof the
population proportion of customerswho purchase
dessert.
The ownerof a competingrestaurantwantsto conducta
similar surveyin her restaurant.This owner doesnot have
accessto the information of the owner of the first restau-
rant.Answerthe following questions:
c. What samplesizeis neededto have95% confidenceof
estimatingthe populationmean amount spentin her
restaurantto within +$1.50,assumingthat the standard
deviationis $8?
d. What samplesize is neededto have90% confidenceof
estimatingthe populationproportion of customerswho
purchasedessertto within +0.04?
e. Basedon your answersto (c) and (d), how large a sam-
ple shouldthe ownertake?
8.77 The manufacturerof "Ice Melt" claimsits product
will melt snow and ice at temperaturesas low as 0o
Fahrenheit.A representativefor a large chain of hardware
storesis interestedin testingthis claim. The chain pur-
chasesa largeshipmentof 5-poundbagsfor distribution.
The representativewants to know with 95% confidence,
within +0.05,what proportionof bagsof Ice Melt perform
thejob as claimedby the manufacturer.
318 EIGHTConfidence
CHAPTER Interval
Estimation
a. How many bagsdoesthe representative needto test?
What assumptionshouldbe madeconcerningthe popu-
lation proportion?(This is called destructivetesting;
that is, the productbeing testedis destroyedby the test
andis thenunavailable to be sold.)
b. The representative tests50 bags,and42 ofthem do the
job as claimed.Constructa 95o/oconfidenceinterval
estimatefor the populationproportion that will do the
job asclaimed.
c. How can the representativeuse the results of (b) to
determinewhetherto sell the Ice Melt product?
8.78 An auditorneedsto estimatethe percentage of timesa
companyfails to follow an internalcontrolprocedure.A sam-
ple of 50 from a populationof 1,000itemsis selecte4andin
7 instances, the internalcontrolprocedurewasnot followed.
a. Constructa90% one-sided confidenceintervalestimate
of thepopulationproportionof itemsin which the inter-
nal controlprocedurewasnot followed.
b. If the tolerableexceptionrate is 0.15, what shouldthe
auditorconclude?
8.79 An auditorfor a governmentagencyneedsto evalu-
atepaymentsfor doctors'officevisitspaid by Medicarein
a particularzip code during the month of June.A total of
25,056visitsoccurredduringJunein this area.The auditor
wantsto estimatethe total amountpaid by Medicareto
within +$5 with 95% confidence.On the basisof past
experience,she believesthat the standarddeviation is
approximately$30.
a. What samplesizeshouldsheselect?
Using the samplesizeselectedin (a), an audit is conducted
with the following results.
Amountof Reimbursement
X = $93.70 ,l = $34.55
In l2 of the office visits, an incorrectamountof reimburse-
ment was provided.For the 12 office visits in which there
was an incorrect reimbursement,the differencesbetween
the amountreimbursedand the amountthat the auditor
determinedshouldhavebeen reimbursedwere as follows
(andare storedin the file@!@
$17 $2s $14 -$10 $20 $40 $3s $30 $28 $22 $15 $5
b. Constructa 90% confidenceintervalestimateof the pop-
ulationproportionof reimbursementsthat containerrors.
c. Constructa 95o/oconfidenceinterval estimateof the
populationmeanreimbursementper office visit.
d. Constructa 95%oconfidenceinterval estimateof the
populationtotal amountof reimbursements for this geo-
graphicareain June.
e. Constructa 95%oconfidenceinterval estimateof the
total differencebetweenthe amountreimbursedand the
amountthat the auditor determinedshouldhavebeen
reimbursed.
8.80 A home furnishingsstore that sells bedroomfurni-
ture is conductingan end-of-monthinventory of the beds
(mattress,bed spring, and frame) in stock.An auditorfor
the store wants to estimatethe meanvalue of the bedsin
stock at that time. Shewantsto have99% confidencethat
her estimateof the meanvalueis correctto within +$100.
On the basisof pastexperience,sheestimatesthat the stan-
darddeviationofthe valueofa bed is $200.
a. What samplesizeshouldsheselect?
b. Using the samplesize selectedin (a), an audit wascon-
ducte4 with the following results:
X = $1,654.27 S = $184.62
Constructa 99o/oconfidenceinterval estimateof the total
value of the bedsin stock at the end of the month if there
were258 bedsin stock.
8.81 A quality characteristicof interestfor a tea-bag-
filling processis the weight of the tea in the individual
bags.In this example,the labelweight on the packageindi-
catesthat the meanamountis 5.5 gramsof tea in a bag.If
the bags are underfille4 two problemsarise.First, cus-
tomersmay not be able to brew the tea to be as strongas
they wish. Second,the companymay be in violation of the
truth-in-labelinglaws. On the other hand, if the mean
amountof tea in a bag exceedsthe label weight, the com-
pany is giving awayproduct. Getting an exact amountof
tea in a bag is problematicbecauseof variationin the tem-
peratureand humidity insidethe factory,differencesin the
densityof the tea, and the extremelyfast filling operation
of the machine(approximately170bagsper minute).The
following dataarethe weights,in grams,of a sampleof 50
tea bagsproducedin one hour by a singlemachine(the
dataarestoredin the file S$!!@:
Weight of TeaBags, in Grams
5.65 s.44 5.42 5.40 s.53 5.34 5.54 s.4s 5.52 5.41
5.57 5.40 5.53 5.54 5.s5 5.62 5.56 5.46 5.44 5.5Ii
5.47 5.40 s.47 5.61 5.53 5.32 5.67 5.29 5.49 5.55
5.77 5.57 5.42 5.58 5.58 5.50 5.32 5.50 5.53
5.61 5.45 5.44 5.25 5.56 s.63 5.50 5.57 5.67
a. Constructa 99o/oconfidenceinterval estimateof
populationmeanweight of the teabags.
b. Is the companymeetingthe requirementsetforth on
labelthatthe meanamountof teain a bag is 5.5
8.82 A manufacturingcompanyproducessteel
for electricalequipment.The main componentpart of
housingis a steeltroughthat is madeout of a l4-gauge

It is producedusinga 250-tonprogressivepunchpress
a wipe-downoperationthat puts two 90-degreeforms
flat steelto makethe troush. The distancefrom one
of theform to the otheris critical becauseof weather-
in outdoorapplications.The data(storedin the
from a sampleof 49 troughsfollows:
Width of Trough, in Inches
8.3438.3178.383 8.348 8.410 8.351 8.313 8.481 8.422
8.3828.4848.403 8.414 8.419 8.385 8.465 8.498 8.447
8.4138.489 8.414 8.481 8.4t5 8.479 8.429 8.458 8.462
8.M 8.4298.460 8.412 8.420 8.410 8.40s 8.323 8.420
8.4478.4058.439 8.411 8.427 8.420 8.498 8.409
Constructa 95o/oconfidenceinterval estimateof the
meanwidth of the troughs.
Interpretthe intervaldevelopedin (a).
The manufacturerof Boston and Vermontasphalt
know that productweight is a major factor in the
's perceptionof quality. The last stageof the
line packagesthe shinglesbeforethey areplaced
woodenpallets.Once a pallet is full (a pallet for most
holdsl6 squaresof shingles),it is weighed,andthe
t is recorded.The data file [@ contains
weight(in pounds)from a sampleof 368 pallets of
shinglesand330palletsof Vermontshingles.
Forthe Boston shingles,constructa 95ohconfidence
intervalestimateof the meanweight.
Forthe Vermont shingles,constructa 95Voconfidence
intervalestimateof the meanweight.
Evaluatewhetherthe assumptionneededfor (a) and (b)
hasbeenseriouslyviolated.
Basedon theresultsof(a) and(b), whatconclusions can
you reachconcerningthe meanweight of the Boston
andVermontshingles?
I The manufacturerof Boston and Vermont asphalt
providesits customerswith a 20-yearwarranty on
ll
of its products.To determinewhethera shinglewill last
5 longasthewarrantyperiod"acceleratedlifetestingis con-
at the manufacturingplant. Accelerated-lifetesting
fs
r'
)6
it would be subjectto in a
the shingleto the stresses
of normal usevia a laboratoryexperimentthat takes
a few minutesto conduct.In this test, a shingleis
h" scrapedwith a brush for a short period oftime,
I
andthe shingle granules removed by the brushing are
hr weighed(in grams).Shinglesthat experiencelow amounts
br ofgranulelossareexpectedto lastlongerin normalusethan
gs shingles thatexperience high amountsof granuleloss.In this
he situation,a shingleshouldexperienceno more than 0.8
rcl gramsof granulelossif it is expectedto lastthe lengh of the
Chapter
ReviewProblems 3I9
warranty period. The data file !@ containsa sample
of 170 measurements madeon the company'sBostonshin-
glesand 140measurements madeon Vermontshingles.
a. For the Boston shingles,constructa 95ohconfidence
interval estimateof the meangranuleloss.
b. For the Vermont shingles,constructa 95o/oconfidence
interval estimateof the meangranuleloss.
c. Evaluatewhetherthe assumptionneededfor (a) and (b)
hasbeenseriouslyviolated.
d. Basedon theresultsof (a) and(b), whatconclusionscan
you reach concerningthe mean granule loss of the
BostonandVermontshingles?
Report Writing Exercises
8.85 Referringto the resultsin Problem8.82on page318
concerningthe width of a steeltrough, write a report that
summarizesyour conclusions.
Team Proiect
8.86 Refer to the team project on page 73 (see the
Eil@@@ file). Constructall appropriateconfidence
interval estimatesof the populationcharacteristicsof low-
risk, average-risk,and high-risk mutual funds. Include
theseestimatesin a reportto the vice presidentfor research
at the financial investmentservice.
Student Survey Database
8.87 Problem1.27on page 15 describesa surveyof 50
undergraduate students(seethe file GEEEEffiE!E$.
a. For thesedata,for eachvariable,constructa95%oconfi-
denceinterval estimateof the populationcharacteristic.
b. Write a reportthat summarizesyour conclusions.
8.88 Problem1.27on page15 describes a surveyof 50
undergraduate students(seethe fileEEE@).
a. Selecta sampleof 50 undergraduate studentsat your
schooland conducta similar surveyfor thosestudents.
b. For the data collected in (a), repeat (a) and (b) of
Problem8.87.
c. Comparethe resultsof (b) to thoseof Problem8.87.
8.89 Problem1.28on page 15 describesa surveyof 50
MBA students(seethe fileEEElffiElldH).
a. For thesedata,for eachvariable,constructa95o/oconfi-
denceinterval estimateof the populationcharacteristic.
b. Write a reportthat summarizesyour conclusions.
8.90 Problem1.28on page 15 describesa surveyof 50
MBA students(seethe file!@@l!@).
a. Selecta sampleof 50 graduatestudentsin your MBA
programandconducta similar surveyfor thosestudents.
b. For the data collected in (a), repeat (a) and (b) of
Problem8.89.
c. Comparethe resultsof (b) to thoseof Problem8.89.
320 CHAPTER EIGHT ConfidenceIntervalEstimatron

Managingthe SpringvilleHerald
The marketing departmenthas been consideringways to
increasethe number of new subscriptionsand increasethe
rate of retention among customerswho agreed to a trial
subscription. Following the suggestion of Assistant
Manager Lauren Alfonso, the department staff designed a
survey to help determine various characteristicsof readers
of the newspaperwho were not home-delivery subscribers.
The surveyconsistsof the following 10 questions:
1. Do you or a memberofyour householdeverpurchase
the Springville Hera ld?
(l)Yes (2)No
[ f t h e r e s p o n d e n ta n s w e r s n o , t h e i n t e r v i e w i s
terminated.]
2. Do you receive the Springville Herald via home
The group agreed to use a random-digit dialing
method to poll 500 local householdsby telephone.Using
this approach,the last four digits of a telephonenumberare
randomly selected to go with an area code and exchange
(the first 6 digits of a l0-digit telephonenumber). Only
those pairs of area codes and exchangesthat were for the
Springville city areawere used for this survey.
Of the 500 households selected"94 householdseither
refusedto participate,could not be contactedafter repeated
attempts, or representedtelephone numbers that were not
in service.The summary results are as follows:
Households
That PurchasetheSpringvilleHerald Frequency
Yes 352
No JA

delivery?
(l)Yes (2)No Householdswith Home Delivery Frequency
[f no,skipto question 4.]
Yes 136
3. Do you receivetheSpringvilleHerald:
( I ) Monday-Saturday(2) Sundayonly (3) Everyday No 216
[f everyday,skip to question9.] Type of Home Delivery Subscription Frequency
4. How often during the Monday-Saturdayperiod do
you purchasethe SpringvilleHerald? Monday-Saturday l8
(l) Everyday (2) Mostdays (3) Occasionally or never Sundayonly 25
5 . How often do you purchasetheSpringvilleHerald on 7 daysa week 93
Sundays?
PurchaseBehavior of Nonsubscribers
( l) EverySunday (2) 2-3 Sundaysper month
for Monday-Saturday Editions Frequency
(3) No morethanoncea month
6 . Whereareyou mostlikely to purchasetheSpringville Every day 78
Herald? Most days 95
(l) Convenience store (2) Newsstand/candy store Occasionally
or never 43
(3) Vendingmachine (4) Supermarket (5) Other
7 . Woufdyou considersubscribingto the Springville PurchaseBehavior of Nonsubscribers
for Sunday Editions Frequency
Heraldfor a trial periodif a discountwereoffered?
(l) Yes (2)No Every Sunday 138
[f no, skipto question 9.] 2-3 Sundaysa month 54
8 . The Springville Herald currently costs $0.50 No more than oncea month )4
Monday-Saturday and $1.50on Sunday, for a totalof
$4.50perweek.Howmuchwouldyoubewillingto pay Nonsubscribers'PurchaseLocation Frequency
perweekto gethomedeliveryfor a 90-daytnal period?
Convenience store 74
9 . Do you read a daily newspaperother than the Newsstand/candy store 95
SpringvilleHerald? Vendingmachine 21
(l)Yes (2)No
Supermarket 13
t 0 .As an incentivefor long-termsubscribers, the news- Otherlocations IJ
paperis considering the possibilityofoflering a card
thatwouldprovidediscounts at certainrestaurants in Would Consider Trial Subscription
the Springvilleareato all subscribers who pay in if Offered a Discount Frequency
advancefor six monthsof homedelivery.Wouldyou
Yes +0
wantto get sucha cardunderthe termsof this offer?
( l ) Y e s ( 2 )N o
No 170

RateWilling to Payper Week(in Dollars) Data file EIjEEE
for a 90-DayHome-DeliveryTrial Subscription
4.153.604.103.603.603.604.403.ts 4.003.754.00
3.253.753.303.753.654.004.r0 3.903.503.753.00
3.404.003.803.504.104.253.503.903.954.304.20
3.503.753.303.853.204.403.803.403.502.853.75
3.803.90
Reada Daily NewspaperOther Than
the Springville Herald
Yes
No
Would Prepal' Six Months to Receive
a RestaurantDiscountCard
Yes
No
Web Case
Applt' your knov'ledge about confidenc'eintervctl estima-
tion in this Weh Case. whic'h extends the OurCamptrs! Web
Case.from Chapter 6.
Among its other features,the OurCampus! Web site
allowscustomersto purchaseOurCampus!LifeStylesmer-
chandiseonline. To handle paymentprocessing,the man-
agementof OurCampus!has contractedwith the following
firrns:
. P a y A F r i e n d( P A F ) : a n o n l i n e p a y m e n t s y s t e m w i t h
w h i c h c u s t o m e r sa n d b u s i n e s s e s u c h a s O u r C a m p u s !
registerin order to exchangepaymentsin a secureand
convenientlranner without the need for a credit card.
. ContinentalBanking Company (Conbanco):a process-
i n g s e r v i c e sp r o v i d e r t h a t a l l o w s O u r C a m p u s ! c u s -
tomers to pay for merchandiseusing nationally recog-
nizedcredit cardsissuedby a financial institution.
To reducecosts,the managementis consideringelimi-
nating one of these two payment systems. However,
Virginia Duffy of the salesdepartmentsuspectsthat cus-
tomersuse the two forms of payment in unequal numbers
1. Cochran,W. G., Sumplingkc'hnique.r,3rd ed. (NewYork:
Wiley, 1977).
2. Fisher, R. A., and F. Yates, Sraristical Tables fiir
Biological, Agricultural and Medic'al Researc'h,5thed.
(Edinburgh:Oliver & Boyd, 1957).
3. Kirk, R. E., ed., Statistical Issues:A Reader /br the
BehavinraI Sc'ienc'es(Beln-ront,CA: Wadsworth, 1972).
Rcf-crenccs 321
EXERCISES
SH8.1 Some members of the marketing departrrentare
concernedabout the random-digitdialing method
usedto collect surveyresponses. Preparea memo-
randumthat examinesthe following issues:
. The advantagesand disadvantages of using the
random-di dialing git rnethod.
' P o s s i b l ea l t e r n a t i v ea p p r o a c h e sf o r c o n d u c t -
ing the survey and their advantagesand dis-
Frequency
advantages,
r38 S H 8 . 2 A n a l y z e t h e r e s u l t so f t h e s u r v e y o f S p r i n g v i l l e
214 households.Write a report that discussesthe urar-
k e t i n g i m p l i c a t i o n so f t h e survey results for the
Frequency Springville Heruld.
66
286
a n d t h a t c u s t o m e r sd i s p l a y d i f f e r e n t b u y i n g b e h a v i o r s
when using the two forrns of payment. Therefore, she
would like to first determrne
a. the proportion of customersusing PAF and the pro-
portion of customersusing a credit card to pay for their
purchases.
b. the mean purchaseamount when using PAF and the
meanpurchaseamountwhen using a credit card.
A s s i s t M s . D u f f y b y p r e p a r i r r ga n a p p r o p r i a t ea n a l y s i s
basedon a random sampleof 50 transactionsthat she has
preparedand placedin an internalfile on the OurCampus!
Web site, www.prenhall.com/Springville/OurCampus_
P y m t S a m p l e . h t m . S u m m a r i z ey o u r f i n d i n g s a n d d e t e r -
mine whether Ms. Duffy's conjecturesabout OurCampus!
customerpurchasingbehaviorsare correct.If you want the
samplingerror to be no more than $3 when estimatingthe
mean purchase amount, is Ms. Duffy's sanrple large
enoughto perform a valid analysis?
4. Larsen,R. L., and M. L. Marx, An Introductionto Mqth-
ematical Statistic'sand lts Applic'ations,4th ed. (Upper
SaddleRiver,NJ: PrenticeHall, 2006).
5. Microsoft Excel 2007 (Redmond,WA: Microsoft Corp.,
2007).
6. Snedecor,G. W., and W G. Cochran"StatisticulMethods,
7th ed. (Arrres,IA: Iowa StateUniversityPress,1980).
322 EXCELcoMpANIoN to chaDter
8

E8.1 COMPUTINGTHE CONFIDENCE
INTERVALESTIMATEFOR THE
MEAN (o KNOWN)
You compute the confidence interval estimatefor the mean
(o known) either by using the PHStat2 Estimate for the
Mean, sigma known procedureor by making entries in the
g@@EEworkbook.
Usinq PHStat2 Estimate
for tFe Mean, Sigma Known
SelectPHStat ) Confidence Intervals ) Estimate for
the Mean, sigma known. ln the Estimate for the Mean,
sigma known dialog box (shown below), enter values for
the Population Standard Deviation and the Confidence
Level. Click one of the input optionsand make the required
entries.Enter a title as the Title and click OK.
If you know the sarnplesize and sample mean of your
sample, click Sample Statistics Known and enter those
values.Otherwise,click Sample Statistics Unknown and
enter the cell range of your sample as the Sample Cell
Range.
Usingthe CIE_SKWorksheet
Open to the CIE_SK worksheet of the
workbook. This worksheet uses the NORMSINV(P<E
and CONFIDENCE(l-conJidence level,population stan-
dard deviution, sample siee) functions to compute the
Z value and interval half-width for the Example 8.1 mean
paper length problem on page 288. To adapt this worksheet
to other problems, enter the appropriatepopulation stan-
dard deviation, sample mean, sample size, and confidence
level values in the tinted cells 84 throush 87 and entera
n e w t i t l e i n c e l lA l .

D*A E8.2 COMPUTINGTHE CONFIDENCE

Psplatim *ardsd Daviatbnl INTERVALESTIMATEFORTHE
Cmfdencs Lwd: ffi*r MEAN (o UNKNOWN)
Inpt O$ions You compute the confidence interval estimatefor the mean
(? funpbstdisticJ Kno$"n (o unknown) either by using the PHStat2 Estimate for the
Mean, sigma unknown procedure or by making entriesin
5ar* Siae: theEIEEEEEEEEIEworkbook.
Sarndefthanl
(^ San& Sf*isticE Ur*nwun
Usinq PHStat2 Estimate
I
t':t I for tFe Mean, Sigma Unknown
SelectPHStat ) Confidence Intervals ) Estimate for
the Mean, sigma unknown. In the Estimate for the Mean,
sigma unknown dialog box (shown on page 323), entera
Ttle: I Confidence Level value, click one of the input options,
and make the required entries.Enter a title as the Title and
l* fir*e PafxJdbn Correction click OK.
: '. If you know the sample size, sample mean, and sample
standarddeviation of your sample,click Sample Statistics
Known and enter those values.Otherwise,click Sample
{ | r.'*.,-..."---.a| I
r-bb I ti oK tl Csrcd I Statistics Unknown and enter the cell range of your sam-
- ple as the Sample Cell Range.
 E8.4: Computingthe SanrpleSizeNeededfor Estimatingthe Mean 323

box (shownbelow),entervaluesfor the SampleSize,the

Number of Successes, andthe ConfidenceLevel.Entera
title astheTitle andclick OK.
Data
CmfklencsLevdl lG-v"
Inrut O$bns
{3 5end6 Stati*ics Known
D€tE
5ampbSiea: Sarpla Siza:
SanphMeanr Nunberaf $iccmcesr
SarnphStd. Devi*ion: CmfidenceLevd: ls-"a
f Sstple StatistksUr{qrown
er$rt OSions
J Ttle: I
l.
f finite PoprJationCorrectbn
**pt O$ions
I | ---....-.,,....,-*.,*,.1

Heb I li€ ol< il

[* fir*e Popr.dation
Csrrection

I
Using the CIE_Pworksheet
II

Heb I lit-:::! oK il Open to the CIE_P worksheet of the Q@EEE

Usingthe CIE_SUWorksheet
Opento the clE_su worksheetof th.EIEEEE@IE
workbook.The worksheet(seeFigure 8.6 on page 293) uses
theTINV( 1-conJid en ce I eveI, d egrees of fre ed om) function
to determinethe critical value from the r distribution and
computethe interval half-width for the Section 8.2 Saxon
HomeImprovementCompany example.To adaptthis work-
sheetto other problems,changethe sample statisticsand
confidence level values in the tinted cells 84 throush 87
andentera new title in cell Al.
E8.3 COMPUTINGTHE CONFIDENCE
INTERVALESTIMATEFORTHE
PROPORTION
Youcompute the confidence interval estimate for the pro-
portion either by using the PHStat2 Estimate for the
Proportion procedure or by making entries in the
q[f[[fis[[!workbook.
UsinqPHStat2 Estimate
for tf,e Proportion
SelectPHStat ) Confidence Intervals ) Estimate for
theProportion. In the Estimatefor the Proportiondialog
workbook. The worksheet(see Figure 8. I 0 on page 297)
uses the NORMSINV(P<,\') function to determine the
Z value and uses the square root function to compute the
standarderror ofthe proportion for the Section8.3 Saxon
H o m e I m p r o v e m e n t C o m p a n y e x a r n p l e .T o a d a p t t h i s
worksheetto other problerns.enterthe appropriatesample
s i z e , n u m b e r o f s u c c e s s e sa, n d c o n f i d e n c e l e v e l v a l u e s
i n t h e t i n t e d c e l l s 8 4 , 8 5 , a n d 8 6 a n d e n t e ra n e w t i t l e i n
cellAl.
E8.4 COMPUTINGTHE SAMPLES/,ZE
NEEDEDFOR ESTIMATING
THE
MEAN
You computethe samplesize neededfor estimatingthe mean
either by using the PHStat2 Determination for the Mean
procedure
or by makingentriesin theEEEEEEEIEEEEE
workbook.
Using PHStat2 Determination
for the Mean
SelectPHStat) SampleSize) Determination
for the
M e a n . I n t h e S a m p l e S i z e D e t e r m i n a t i o nf o r t h e M e a n
dialog box (shown on page 324), enter values for the
Population Standard Deviation, the Sampling Error,
and the Confidence Level. Enter a title as the Title and
click OK.
324 EXCELcoMPANIoNro chanter8

Dd6 Data
Poprlatim $ardard DcviaHon: t-- of Trrr ProporHml
Estimatc
Sanphg Errsn
CmfirJenceLenrd:
r- 5anphrgError:
Cmf*Jence
Lwd:
lgs*qe
G*pnt Ofrims O-tp.t O$iors

Using the SampleSize*MWorksheet Using the SampleSize_PWorksheet

Open to the SampleSize_M worksheet of the Open to the
SampleSize_P worksheet of the
f,!ffi!f@fl!![[! (seeFigure
workbook.Theworksheet @file. The worksheet(see Figure
8.1I onpage301)usestheNORMSINV@<$function to 8.12 on page304) usesthe NORMSINV and ROUNDUP
compute the Z value and usesthe ROUNDUP(value) func- functions,discussedin SectionE8.3, for the SaxonHome
tion to round up the sample size neededto the next higher ImprovementCompany example in Section 8.3. To adapt
integer for the Section 8.4 Saxon Home Improvement this worksheetto other problems,enter the appropriateesti-
Company example.To adapt this worksheet to other prob- mate of true proportion, sampling error, and confidence
lems, enter the appropriate population standarddeviation, level valuesin the tinted cells 84 throush 86 and entera
sampling error, and confidence level values in the tinted new title in cell A l.
cells 84" 85. and 86 and entera new title in cell A l .

I
E8.5 COMPUTINGTHE SAMPLESIZE E8.6 COMPUTINGTHE CONFIDENCE (
NEEDEDFOR ESTIMATING
THE INTERVALESTIMATEFORTHE
PROPORTION POPULATIONTOTAL
Y o u c o r n p u t et h e c o n f i d e n c e i n t e r v a l e s t i m a t ef o r t h e
You compute the sample size needed for estimating the
population total either by using the PHStat2 Estimatefor
proportion either by using the PHStat2 Determinationfor
the Population Total procedure or by making entries in the
the Proportion procedure or by making entries in the
EIEEIE[IE*orkbook.
@workbook.

Using PHStat2 Determination Using PHStat2 Estimate for the

for the Proportion Population Total
SelectPHStat ) $n6p1e Size ) Determination for the SelectPHStat ) ConfidenceIntervals) Estimatefor
P r o p o r t i o n . I n t h e S a m p l e S i z e D e t e r m i n a t i o nf o r t h e the PopulationTotal. In the Estimatefor the Population
Proportion dialog box (shown at right), enter values for Totaldialogbox (shownon page325),entervaluesforthe
the Estimate of True Proportion, the Sampling Error, PopulationSizeandthe ConfidenceLevel. t

and the Confidence Level. Enter a title as the Title and Click one of the inputoptionsandmakethe required I
click OK. entries. !
 E8.7: Computingthe ConfidenceIntervalEstimatefor theTotal Difference 325

Usinq PHStat2 Estimate

for tEe Total Difference
SelectPHStat ) ConfidenceIntervals) Estimatefor
Foptd*lmSa: the Total Difference. In the Estimatefor the Total
Differencedialogbox (shownbelow),entervaluesfor the
CmffdcnccLcnd:
- brtrlt O$iont
l* ab
SampleSize,the PopulationSize,and the Confidence
Level. Enter the cell range of the differencesas the
DifferencesCell Range.If the first cell in the columnof
{i Sarpte5t6tirtks Knonrn differences containsa label,click First cell containslabel,
Sarpla Size: entera title astheTitle. andclick OK.
Sarplafvban:
sefiph sttrtdtd Dwi*hnr
(^ Sarpte$atlsticsurfoowr
" Dda
J ri
, Sarn$ Sal
PotrJationSza:
Corfiderre Levd: lE-s.
, Of,fsroncesCdlRanga:I J
fiZ rtstcdcor*ahsl#
li or il cercd I
O"tput@tims
TllEr I
If youknowthesamplesize,samplemean,andsample
deviationof your sample,click SampleStatistics lf.*.-."'el I

andenterthosevalues.Otherwise,click Sample li OK ll Cancd I

Unknown and enterthe cell rangeof your sam-
asthe Sample Cell Range. Enter a title as the Title and
oK. Usingthe CIE_TDWorksheet
Open to the CIE_TD worksheet of the
the CIE_TWorksheet gtr@file. This worksheet(seeFigure 8.14
on page 310) uses the TINV(I-conJidence level, degrees
of theEIEIEEIEIE
totheCIE-T worksheet workbook.
of freedom) function to determine the critical value from
(seeFigure8.13on page307)usesthe
worksheet
the I distribution and the interval half-width for the Section
l-conjidence level, degrees offreedom) function to
8.5 Saxon Home Improvement Company total difference
inethe criticalvaluefrom the I distributionand the
example.The worksheet also contains a calculation area in
half-width for the Section 8.5 Saxon Home
c e l l r a n g eD 9 : E 1 6 ,a s s h o w n i n F i g u r e E 8 . 1 , t h a t c o u n t s
Company population total example.To adapt
and sums the differences listed on a DifferencesData
to otherproblems,enterthe appropriate
worksheet
worksheet.Figure EB.2 illustratesthe first 6 of the 13 rows
ationsize, sample mean, sample size, sample stan-
in the Difference Data worksheet).
deviation.and confidence level values in the tinted
84 through 88 and enter a new title in cell A I .

7 COMPUTING THECONFIDENCE or standarddeviationof difierences

of 0i6erencesNol = 0 12 -COUtlT(DlFerencoellalalAAl
INTERVAL FORTHE
ESTIMATE ofDifersnces=B 88 -85 - El1
for DiferencesNol = 0 -SUt(0lfieronc.doata!B:B)
TOTALDIFFERENCE forDifisrences=O
678
71.n - E r 2 ' ( 4 1 0 1 2
ofSouares 719,6664- E l 3 + E l f
comoutethe confidence interval estimate for the total of Differences 7. -El5/815
nceeitherby usingthe PHStat2Estimatefor the
Differenceorocedureor bv makins entriesin the
E8.1
FIGURE
workbook. Calculationsarea in the Difference Data worksheet
326 ExcEL coMPANIoNto chapter8

A B formula in cell Bl3 to all rows with differencedata.if

Dlficrcncer -IlBail^i havemore than 12 differences;or by deleting
2 9.tr -{A2 - gE_TDltB$10}^2
66.C columnB formulas,if you havefewerthan 12 di
3 7.11 €.14rc-(/[3 . gE_riDltBtl0fz
4 17.fr mt.6161-0[4 - CIE_Tl]lfB$10]^
Z
5 8. 51.78-!45 - qE_T,-DltBtl0l^2
5 5"21 18.5751-(A5 - CtE-T:DttB$10r
2 E8.8 COMPUTINGFINITE
FIGUREE8.2 POPULATION
CORRECTION
(partia
FACTORS
DifferencesData
worksheet l)
The workbooksfor confidenceinterval estimationsof
mean and proportion and for computing the sample
neededfor estimatingthe meanor proportion includea
To adaptthis worksheetto otherproblems,you needto worksheetthat calculatesthe confidenceinterval estimate
changeboth the CIE_TD and DifferencesDataworksheet. samplesize, using a finite population conection factor
In the CIE_TD worksheet,enterthe appropriatepopulation Section8.7 on the StudentCD-ROM).(Opento those
size,samplesize,and confidencelevel valuesin the tinted sheetsfor further information.) If you use PHStat2,you
cells 84 through86 and entera new title in cell Al. In the includethesecomputationsby clicking the Finite
DiffererencesData worksheet,enterthe differencesin col- Correction output option and enteringthe Population
umn A. Then adjustcolumn B by either copying down the beforeclicking OK in the appropriatedialogboxes.