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Statcal - Module 9 Assignment

There is a significant positive relationship between collision claim ratings and comprehensive claim ratings for nine makes of midsize cars from 2014-2016, with an r-value of 0.9381. This indicates that changes in collision claim ratings can explain 88% of the changes in comprehensive claim ratings. It is recommended to sell collision and comprehensive insurance together. There is also a significant positive relationship between distribution costs and number of orders for a catalog company's warehouse over 12 months, with an r-value of 0.8622. This means changes in distribution costs can explain 74.34% of the changes in number of orders. It is recommended that management find ways to reduce distribution costs while maintaining effective and efficient distribution.

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490 views4 pages

Statcal - Module 9 Assignment

There is a significant positive relationship between collision claim ratings and comprehensive claim ratings for nine makes of midsize cars from 2014-2016, with an r-value of 0.9381. This indicates that changes in collision claim ratings can explain 88% of the changes in comprehensive claim ratings. It is recommended to sell collision and comprehensive insurance together. There is also a significant positive relationship between distribution costs and number of orders for a catalog company's warehouse over 12 months, with an r-value of 0.8622. This means changes in distribution costs can explain 74.34% of the changes in number of orders. It is recommended that management find ways to reduce distribution costs while maintaining effective and efficient distribution.

Uploaded by

Kate Warner
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Problem 1

The Insurance Institute for Highway Safety has listed the following ratings based on collision
and comprehensive claims for nine makes of midsize four-door cars from 2014-2016 model
years. Higher numbers reflect higher claims in the collision and comprehensive categories of
coverage.  Describe the direction and degree of relationship; and at a .05 alpha, is there
significant relationship between collision claim rating and comprehensive claim rating?

Comprehensive
Claims Collision claim rating claim rating XY X^2 Y^2
(X) (Y)
1 113 89 10057 12769 7921
2 108 91 9828 11664 8281
3 124 92 11408 15376 8464
4 131 108 14148 17161 11664
5 128 108 13824 16384 11664
6 90 74 6660 8100 5476
7 99 79 7821 9801 6241
8 106 86 9116 11236 7396
9 116 98 11368 13456 9604
Total 1015 825 94230 115947 76711

Null Hypothesis: There is no significant relationship between collision claim rating and
comprehensive claim rating
Alternative There is a significant relationship between collision claim rating and comprehensive
Hypothesis: claim rating

Level of 0.05/2 = 0.025


Significance:

Degree of n-2 = 9-2= 7


freedom:

Critical r: ± 0.666

Decision rule: Reject the null hypothesis if r > 0.666 or r < -0.666; otherwise, do not reject the null
hypothesis.

Computation:

"r =" "9" ("94,230"


r = 0.9381)"-" ("1,015" )"×" ("825" )/(√("9"
("115,947" )"-" ("1,015" )^"2" ) " ×" √("9"
("76,711" )"-" ("825" )^"2" )) 10695 11400.64
The r-value of 0.9381 reflects the very high positive relationship of the collision claim
rating and comprehensive claim rating.
r^2 = 0.9381^2 = 0.8800 or 88%

Its r^2 value, 88%, represents the changes in collision claim rating that can be
explained by the changes in the comprehensive claim rating, and the remaining 12%
are the unexplained facors or factors not included in the study.

Conclusion: Reject the null hypothesis, 0.9381 > 0.666, which means that there is a significant
relationship between the collision claim rating and comprehensive claim rating.

Based on the statistical test applied, it was seen that there is a significant
relationship between the collision claim rating and the comprehensive claim rating.
Recommendation: This gives us a reason to say that most auto insurance claims are from collisions. It
can be recommended that the data that was obtained be a learning material for
those seeking car insurances. Both the comprehensive and collision insurances can
be sold as a package.
Problem 2

A mail-order catalog business that sells personal computer supplies, software, and hardware
maintains a centralized warehouse for the distribution of products ordered. Management is
currently examining the process distribution from the warehouse and is interested in studying
the factors that affect warehouse distribution costs. Currently, a small handling fee is added to
the order, regardless of the amount. The table below shows the data (distribution costs in
thousands of dollars and number of orders) collected for the past 12 months. Describe the
direction and degree of relationship of the two variables; and at a .01 alpha, is there significant
relationship between distribution costs and number of orders?

Distribution costs Number of orders


Claims XY X^2 Y^2
(X) (Y)
1 52.95 4015 212594.25 2803.70 16120225
2 71.66 3806 272737.96 5135.16 14485636
3 85.58 5309 454344.22 7323.94 28185481
4 63.69 4262 271446.78 4056.42 18164644
5 72.81 4296 312791.76 5301.30 18455616
6 68.44 4097 280398.68 4684.03 16785409
7 52.46 3213 168553.98 2752.05 10323369
8 70.77 4809 340332.93 5008.39 23126481
9 82.03 5237 429591.11 6728.92 27426169
10 74.39 4732 352013.48 5533.87 22391824
11 70.84 4413 312616.92 5018.31 19474569
12 54.08 2921 157967.68 2924.65 8532241
Total 819.70 51110 3565389.75 57270.73 223471664

Null Hypothesis:
There is no significant relationship between distribution costs and number of orders
Alternative
Hypothesis: There is a significant relationship between distribution costs and number of orders

Level of 0.01/2 = 0.005


Significance:

Degree of n-2 12-2= 10


freedom:

Critical r: ± 0.708

Decision rule: Reject the null hypothesis if r > 0.708 or r < -0.708; otherwise, do not reject the null
hypothesis.
"r =" ("1" 2("3" ,565,389.75)"-" ("819.70" )"×" ("51,110"
Computation:))/(√("1" 2("57,270.7" 3)"-" ("819.70" )^"2" ) " ×" √("1"
2("223,471,664" )"-" ("51,11" 0)^"2" ))

r = 0.8622
889810 1032022
The r-value of 0.8622 reflects the high positive relationship of the distribution costs and
number of orders.
r^2 = 0.8622^2 = 0.7434 or 74.34%

Its r^2 value, 74.34%, represents the changes in number of orders that can be explained
by the changes in the distribution cost, and the remaining 25.66% are the unexplained
facors or factors not included in the study.

Conclusion: Reject the null hypothesis, 0.8622 > 0.708, which means that there is a significant
relationship between the distribution costs and number of orders..

Based on the statistical test applied, there is a significant relationship between


Recommendation: distribution costs and number of orders. With this, it can be recommended that the
management find a way to reduce distribution costs. They should strategize it in a way
that still makes the distribution effective and efficient while keeping the costs down.
They should also look into other factors which may affect the distribution costs such as
the distance and weight of the orders.

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