CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 4 December 2024. Morning Paper. Time Allowed: 3 hours.

This paper consists of seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Show
ALL your workings. Do NOT write anything on this paper.

QUESTION ONE
(a) Explain TWO applications of calculus in business management. (4 marks)

(b) Consider a company manufacturing a product with the following functions:

Marginal revenue (Sh.“000”) = 50 - 4q

Average costs (Sh.“000”) = 5 - 16/q

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Required:

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(i) Formulate the profit function. (4 marks)

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(ii) Determine the quantity to be produced in order to maximise profit. (3 marks)

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(iii) Calculate the maximum profit. (3 marks)

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(c) The 2 x 2 matrices; A, X and B are given as follows:

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A = 10 4 ; X = a b ; B = 18 14
4 2 c d 8 10

Required:
Given that AX = B, find the values of a, b, c and d. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) Outline FOUR characteristics of a poisson probability distribution. (4 marks)

(b) In relation to probability theory, distinguish between “subjective approach to probability” and “classical approach
to probability”. (4 marks)

(c) A manufacturing company is evaluating the preferences of 250 customers regarding three new products; product
Exe, product Wye and product Zed. The following information was gathered from a sample survey:

• 35 customers prefer both product Exe and product Wye.

• 120 customers prefer either product Exe or product Wye but not product Zed.
• 50 customers prefer product Wye but not product Zed or product Exe.
• 140 customers prefer either product Wye or product Zed but not product Exe.
• 70 customers prefer either product Zed but not product Exe or product Wye.
• 20 customers prefer both product Exe and product Zed but not product Wye.
• 45 customers prefer product Exe but not product Wye or product Zed.

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 Required:
(i) Visualise the customers’ preferences using a Venn diagram. (6 marks)

(ii) Determine the probability that a customer selected at random expressed a preference for all the three
products. (2 marks)

(iii) Determine the probability that a customer selected at random expressed a preference for at most two of
the three products. (2 marks)

(iv) Determine the probability that a customer selected at random did not prefer any of the three products.
(2 marks)
(Total: 20 marks)

QUESTION THREE
(a) Explain THREE methods of estimating the trend line in time series analysis. (6 marks)

(b) The manager of Glaze Ltd. has selected a random sample of 150 invoices from the company’s outstanding
invoices and provides the following distribution:

Sales Probability of
Sh.“000” outstanding invoice
0 – 100 0.20
100 – 200 0.18
200 – 300 0.22
300 – 400 0.16
400 – 500 0.09
500 – 600 0.08

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600 – 700 0.04
700 – 800 0.03

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Required:

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(i) Calculate the expected mean of the random sample. (4 marks)

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(ii) Calculate the expected standard deviation of the random sample. (4 marks)

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(iii) Calculate the coefficient of variation of the random sample. So (2 marks)

(iv) Determine the 95% confidence interval of the mean value of the outstanding invoices. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Enumerate FOUR assumptions of linear programming model. (4 marks)

(b) Faida Ltd. is in the process of reviewing the selling price for product “Excel”.
The selling prices under consideration are Sh.50, Sh.55 and Sh.60.
The following additional information is provided about the forecasted demand for product “Excel” under three
different market conditions:
Market condition (Demand in Units)
Selling price Good Moderate Bad
Sh.50 20,000 18,000 14,000
Sh.55 18,000 16,500 12,000
Sh.60 16,000 14,000 8,500

The fixed costs are estimated at Sh.300,000 and variable cost per unit is Sh.30.

Required:
(i) Construct the pay-off trade for product “Excel”. (6 marks)

(ii) Advise Faida Ltd. on the best selling price for product “Excel” based on maximax criterion. (2 marks)

(iii) Advise Faida Ltd. on the best selling price for product “Excel” based on maximin criterion. (2 marks)

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 (iv) Determine the best selling price for product “Excel” based on expected monetary value (EMV) criterion
given that probability for good, moderate and bad market criterion is 0.30, 0.50 and 0.20 respectively.
(3 marks)

(v) Determine the expected value of perfect information. (3 marks)

(Total: 20 marks)

QUESTION FIVE
(a) Describe FOUR applications of linear functions in business. (4 marks)

(b) A research assistant wishes to determine how the weight of 10 students is related to their height. He collects a
random sample of 10 students and measures both height in centimetres (cm) and their weight in kilograms (kg).
The results are shown in the table below:

Student Number Height (Cm) Weight (Kg.)

1 149 49.2
2 150 49.4
3 147 46.7
4 147 47.4
5 142 41.6
6 138 35.5
7 151 51.4
8 148 47.4
9 144 36.7
10 140 36.4

Required:

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(i) The product moment correlation coefficient. (4 marks)

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(ii) The ordinary least squares regression equation. (4 marks)

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(iii) Predict the weight of a student with a height of 152cm. (3 marks)

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(iv) The standard error of estimate. (2 marks)

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(v) Determine at 95% confidence interval, the predicted weight of a student with a height of 152cm.
(3 marks)
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(Total: 20 marks)

QUESTION SIX
(a) Using appropriate illustrations, explain the following terms as used in matrices:

(i) Diagonal matrix. (2 marks)

(ii) Scalar matrix. (2 marks)

(b) A factory produces two products; product A and product B. The company wants to determine how many units of
each product to produce in order to maximise profit. The production of each product is subject to two resource
constraints; machine hours and labour hours.

The profit for each unit of product A is Sh.40 and Sh.30 for product B.

Each unit of product A requires 2 hours of machine time, while each unit of product B requires 1 hour of machine
time. The company has a maximum of 100 machine hours available.

Each unit of product A requires 1 hour of labour and each unit of product B requires 2 hours of labour. The
company has a maximum of 80 labour hours available.

Required:
(i) Formulate the above problem as a linear programming problem. (4 marks)

(ii) Determine the optimal solution using the simplex method. (12 marks)
(Total: 20 marks)
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QUESTION SEVEN
(a) Tangles Limited is the sole producer of three hair products; kinky, fluffy and flat that currently have a market
share of 30%, 50% and 20% respectively.

Each month, some brand switching takes place as follows:

• Customers that bought kinky the previous month, 70% buy it again while equal proportion switch to
fluffy and flat respectively.
• Customers that bought fluffy the previous month, 60% buy it again while 25% switch to kinky and 15%
to flat.
• Customers that bought flat the previous month, 70% remain while 10% switch to kinky and 20% to
fluffy.

Required:
(i) Construct a probability transition matrix of the switching probabilities. (3 marks)

(ii) Calculate the new market share a month after the current market share. (4 marks)

(iii) Calculate the steady state. (7 marks)

(b) A company operates under two departments; production and marketing department. Details relating to a sample of
employees working in the two departments has been provided as follows:

Accounting Department Marketing Department

Number of employees 40 50
Average monthly salary Sh.120,000 Sh.130,000
Standard deviation Sh.10,000 Sh.12,000

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Required:
Determine whether there is any significant difference between the average salaries of employees working in the

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two departments.

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(Use a significance level of 5 percent). (6 marks)

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(Total: 20 marks)
.............................................................................................................

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 21 August 2024. Morning Paper. Time Allowed: 3 hours.

This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
(a) State FOUR characteristics of the mean as a measure of central tendancy. (4 marks)

(b) Describe FOUR assumptions of linear regression model as used in statistics. (4 marks)

(c) The total revenue function of producing product “G” is quadratic in nature. The following data shows the number
of units of product G sold and the corresponding sales revenue in thousands of shillings:

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Sales revenue (R) Sh.“000” 2,325 2,900 3,750

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Number of units sold (Q) 15 20 30

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Required:
(i) Formulate the total revenue function. (6 marks)

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(ii) Determine the maximum revenue of producing product “G”. (4 marks)

(iii) Calculate the total revenue when the number of units sold is 80.
me (2 marks)
(Total: 20 marks)
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QUESTION TWO
(a) In a classroom with 15 students, 4 of whom are girls, the teacher randomly selects 4 students for a group project.

Required:
Determine the probability that the group of the students selected will be composed of the following:

(i) 3 girls and 1 boy. (3 marks)

(ii) All boys. (3 marks)

(iii) At least one girl. (3 marks)

(b) The following frequency distribution table shows the amount of annual electricity bill obtained from a local utility
company’s annual report:

Electricity bill Sh. “000” Frequency

0 – 249 3
250 – 499 10
500 – 749 8
750 – 999 3
1,000 – 1,249 4
1,250 – 1,499 1
1,500 – 1,749 0
1,750 – 1,999 1
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 Required:
(i) Calculate the lower quartile and interpret your result. (3 marks)

(ii) Determine the median value of the electricity bill. (2 marks)

(iii) Compute the upper quartile value of the electricity bill. (2 marks)

(iv) Determine the quartile coefficient of skewness and interpret your result. (4 marks)
(Total: 20 marks)

QUESTION THREE
(a) An economy produces food, clothing and shelter. To produce one unit of food, it requires 0.6 units from food
sector, 0.2 units from clothing sector and 0.1 units from the shelter sector. To produce one unit of clothing, it
requires 0.1 units from the food sector, 0.4 units from clothing sector and 0.2 units from the shelter sector. To
produce one unit of shelter it requires 0.1 units from the food sector, 0.4 units from the clothing sector and 0.4
units from the shelter sector.

Required:
(i) Determine the matrix of technical coefficient (A). (2 marks)

(ii) Compute the total output for food, clothing and shelter sectors to satisfy a final demand of 50 units of
food, 400 units of clothing and 400 units of shelter.

Assume that;

1 0.28 0.08 0.10

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(I – A)–1 = 0.086 0.16 0.23 0.18
0.10 0.09 0.22 (4 marks)

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(iii) Account for the usage of clothing sector output determined in (a) (ii) above. (3 marks)

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(b) Three judges rank 8 contestants in a talent show. The rankings assigned by each judge for all contestants are
displayed in the table below:

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Contestant A B C D E F G H
Judge 1 Rankings 1 2 3 4 5 6 7 8
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Judge 2 Rankings 2 1 3 4 6 5 7 8
Judge 3 Rankings 1 3 2 5 4 6 7 8

Required:
(i) Using the Spearman’s rank correlation coefficient, determine the pair of judges that indicated the highest
agreement in their rankings. (9 marks)

(ii) Describe TWO scenarios where one might prefer to use Spearman’s rank correlation instead of other
correlation models. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) The disease monitoring centre has established that the annual number of pandemic occurrence follows a Poisson
distribution with a mean of 0.30 per annum.

Required:
(i) The probability that no pandemic will occur within a year. (3 marks)

(ii) The probability that at most two pandemics will occur within a year. (3 marks)

(b) Bobino Electricals Limited manufactures electric kettle and electric cookers.

Each electric kettle is sold at Sh.1,950 and each electric cooker is sold at Sh.2,400.

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 An electric kettle requires 3 kilograms of steel while an electronic cooker requires 5 kilograms of steel. Steel costs
Sh.200 per kilogramme. It costs the company Sh.120 per hour to assemble each of the products.
It takes 5 hours to assemble an electric kettle and 7 hours to assemble an electronic cooker.

There are 1,500 kilograms of steel available and a total of 2,450 hours available for assembling.

Required:
(i) Formulate the linear programming equations necessary to solve the above problem. (6 marks)

(ii) Solve the linear programming equations formulated in (b) (i) above graphically. (8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Describe TWO laws of probability. (4 marks)

(b) A company is contemplating an investment in either of the two machines; Machine A or Machine B to enhance its
production capabilities. The decision requires assessing the costs and potential returns of each machine under
varying market conditions.

The following information relates to the two machines:

Machine A
 Cost: Sh.100,000,000.
 Potential returns: Sh.250,000,000, if market demand is high and Sh.60,000,000 if market demand is low.
 Probability of high market demand is 0.70.
 Probability of low market demand is 0.30.

Machine B

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 Cost: Sh.150,000,000.
 Potential returns: Sh.320,000,000 if market demand is high and Sh.80,000,000 if market demand is low.

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 Probability of high market demand is 0.50.

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 Probability of low market demand is 0.50.

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Additionally, the company can choose to conduct a survey at a cost of Sh.20,000,000 to obtain more information
before making the investment decision. The survey can indicate either favourable or unfavourable results with

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probabilities of 0.80 and 0.20 respectively, influencing the probabilities of market conditions.

If survey is favourable for both Machine A and Machine B: me

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 Probability of high market demand is 0.90.
 Probability of low market demand is 0.10.

If survey is unfavourable for both Machine A and Machine B:

 Probability of high market demand is 0.20.
 Probability of low market demand is 0.80.

The potential returns of Machine A and Machine B remain unchanged regardless of the survey outcome.

Required:
(i) Draw the decision tree for the above scenario. (10 marks)

(ii) Advise the management of the company on the best decision using the Expected Monetary Value (EMV)
approach. (4 marks)

(iii) Determine the Expected Monetary Value from the decision made in (b) (ii) above. (2 marks)
(Total: 20 marks)

QUESTION SIX
(a) A random variable is normally distributed with a mean of 25 and a standard deviation of 5.

Required:
Using normal distribution approach:

(i) Calculate the value that will be exceeded 10% of the time assuming an observation is randomly selected
from the distribution. (2 marks)
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 (ii) Compute the value that will be exceeded 85% of the time assuming an observation is randomly selected
from the distribution. (2 marks)

(iii) Determine the two values of which the smaller value has 25% of the values below it and the larger value
has 25% of the values above it. (2 marks)

(iv) Determine the value in which 15% of the observations will be below the distribution. (2 marks)

(b) A manufacturer claims that their packaging machine could fill a packet of sugar with an average weight of 600
grams.

A sample of 36 packets of sugar has an average weight of 500 grams with a standard deviation of 25 grams.

Required:
Test at a 5% significance level if there is sufficient evidence to reject the manufacturers claim. (6 marks)

(c) (i) Find the value of the following integral:

∫(4x3 + 2x + 5) dx for an interval between x = 1 and x = 3 (4 marks)

(ii) A function of a curve is given as:

Y = 3x2 – 12x + 64

Find the integral equation of the function. (2 marks)

(Total: 20 marks)

QUESTION SEVEN
(a) The data below represents the sales made by Yatta Traders for a period of three years:

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Sales (Sh.“million”)

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Quarters

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Year 1 2 3 4
2021 4.4 10 15.8 6.4

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2022 5.8 10.4 16.4 7.6
2023 6.4 11.6 18.2 8.2

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Required:
(i) The 4-centered moving average trend values. (4 marks)
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(ii) The seasonally adjusted additive indices. (6 marks)

(b) Highlight SIX assumptions of Markov analysis. (6 marks)

(c) Differentiate between “an interval estimate” and “a point estimate”. (4 marks)
(Total: 20 marks)

.............................................................................................................

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 24 April 2024. Morning Paper. Time Allowed: 3 hours.

This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
(a) State FIVE characteristics of binomial distribution. (5 marks)

(b) Isabella Koech, a businesswoman, is contemplating investing in one of two manufacturing companies namely;
company A and company B. The data below shows the profits made by company A and company B over the past
150 days.

Daily profits Number of days

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Sh.“000” Company A Company B

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50 – 60 12 11
60 – 70 26 14

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70 – 80 38 20

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80 – 90 36 23
90 – 100 18 45

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100 – 110 11 23
110 – 120 9 14

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Required:
(i) Calculate the standard deviation for company A and company B. (6 marks)

(ii) Calculate the coefficient of variation for company A and company B. (2 marks)

(iii) Advise Isabella Koech on the company to invest in based on the results obtained in (b) (i) and (b) (ii)
above. (2 marks)

(c) Given the following sets:

A = {a, b, c, d}
B = {c, d, e, f, g}
C = {h, i, j, c, d}

Required:
Find:

(i) The universal set “⋃”. (2 marks)

(ii) A⋂B⋂C. (2 marks)

(iii) C'. (1 mark)

(Total: 20 marks)

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QUESTION TWO
(a) TOC Limited, an oil processing company purchased a machine that they intend to use in one of their production
processes. The machine is expected to have a useful life of 10 years after which it can be disposed for Sh.200,000.
The net book value of the machine after 8 years is estimated to be Sh.560,000.

Required:
(i) The linear depreciation equation for the value of the machine. (4 marks)

(ii) Determine the value of the machine after 6 years. (2 marks)

(iii) Determine the number of years when the value of the machine will be Sh.1,460,000. (2 marks)

(b) A production manager is convinced that a new set of plant engineers will not affect the production level in the
factory. To test this hypothesis, 15 samples of the first day output is taken and average production per day is
measured as 14,500 units with a standard deviation of 102. Before the new plant engineers were engaged, the
average output per day was 14,650 units.

Required:
Test the manager’s conviction at 5% level of significance. (8 marks)

(c) Highlight FOUR considerations in determining whether to employ a census or a sample in collecting primary data.
(4 marks)
(Total: 20 marks)

QUESTION THREE
(a) Clekex Cleaning Limited manufactures bar soaps for a hotel industry. The company specialises in three different
types of bar soaps weighing 0.5kg, 0.75kg and 1kg respectively. The three types of bar soaps are made by two

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machines, machine A and machine B. The number of hours required for each type of bar soap in each machine is
shown below:

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Type of bar soap Time taken for bar soap production (hours)
Machine A Machine B

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0.5 0.40 0.25
0.75 0.60 0.12

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1 0.50 0.60

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Machine A has 2,800 hours available while machine B has 1,090 hours available. The management has decided
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that 1,000 bar soaps of 0.5kg must be produced.

Required:
The number of 0.75kg bar soaps and 1kg bar soaps that will be produced assuming machine A and B hours are
fully utilised. (6 marks)

(b) The following table shows the total cost per day on production of iron sheets for the last 10 days in a
manufacturing company:
Day Number of iron sheets produced Total cost Sh.“000”
1 31 35
2 29 33
3 35 35
4 29 36
5 38 40
6 28 34
7 32 35
8 34 37
9 26 32
10 25 25

Required:
(i) Determine the total cost function using the ordinary least squares method. (6 marks)

(ii) Determine the break-even number of iron sheets produced assuming that each iron sheet is sold at
Sh.2,200 each. (3 marks)
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 (iii) The coefficient of determination of the data. (4 marks)

(iv) Interpret the result in (c) (iii) above. (1 mark)

(Total: 20 marks)

QUESTION FOUR
(a) Differentiate between the “multiplicative model” and “additive model” as used in time series. (4 marks)

(b) A research company has established that the occurrence of a contagious disease follows a Poisson distribution with
a mean of 0.3 per week.

Required:
(i) The probability that no case of a contagious disease is reported. (3 marks)

(ii) The probability that almost one case of a contagious disease is reported. (3 marks)

(c) A solar panel production firm intends to research on a launch of a new solar panel which would increase the sales
of the panels to between 2,000 units to 3,000 units per week. The weekly revenue in thousands of shillings over
the range of sales could be represented by:

R = –3x2 + 7x

Where x is the weekly solar panel units produced and sold in thousands. Past records of the solar panel production
in the firm estimates its marginal costs in thousands of shillings could be represented by the function;

MC = 2x2 – 3x + 5

The fixed costs will be Sh.1,000 per week.

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Required:

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(i) The average cost function of the firm. (2 marks)

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(ii) The average revenue function of the firm. (1 mark)

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(iii) The profit maximising output. (5 marks)

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(iv) The price that should be charged to maximise profits. (2 marks)

me (Total: 20 marks)
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QUESTION FIVE
(a) A car hire company has provided the data below showing the number of cars hired out for the last 10 months
ending 31 March 2024:

Month Number of cars

June 2023 110
July 2023 115
August 2023 109
September 2023 108
October 2023 106
November 2023 111
December 2023 107
January 2024 112
February 2024 114
March 2024 110

Required:
(i) The forecast number of cars for the month of April 2024 using exponential smoothing method with a
smoothing constant α = 0.3. (3 marks)

(ii) The three months moving average forecasts for the month of April 2024. (1 mark)

(iii) Using suitable computation, advise on the best forecast method. (6 marks)

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(b) World K Tours has Sh.6 million that may be used to purchase new rental minibuses for hire during the coming
holidays. The minibuses may be purchased from two different manufacturers.

Important data concerning the minibuses is summarised below:

Minibus type Manufacturer Cost Maximum seating Expected daily profit

capacity per minibus (Sh.)
Weaverbird Fastbus 80,000 11 10,000
Eaglet Fastbus 90,000 14 12,000
Dovey Smartbus 70,000 7 9,000
Crowlet Smartbus 140,000 18 16,000

World K Tours wishes to purchase at least 80 minibuses and equal numbers from each of the manufacturer. World
K Tours wishes to have a total sitting capacity of at least 500.

Required:
(i) Formulate the above linear programming problem. (6 marks)

(ii) Outline FOUR assumptions of the linear programming technique. (4 marks)

(Total: 20 marks)

QUESTION SIX
(a) A manager must select 4 employees for a job promotion. 12 employees are eligible for job promotion.

Required:
(i) Determine the number of ways in which 4 employees could be chosen. (3 marks)

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(ii) Determine the number of ways in which the 4 employees could be chosen from the 12 employees in the
department. (3 marks)

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(b) A property developer has Sh.1,000,000 to invest in a new property. The developer has a choice of three different
properties going at the same price in different towns; one in Nairobi, another in Nakuru and the other in Nanyuki.

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With the three properties, his ultimate profit depends on whether the economy is strong, weak or mixed.

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He estimates that the pay-off matrix representing his monthly profits in thousands of shillings is as follows:

States of nature me
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Weak Mixed Strong
Nairobi 85 30 75
Strategies Nakuru 45 45 110
Nanyuki 60 95 85

Required:
Determine the town that the developer should invest in using:

(i) Maxi-max criterion. (2 marks)

(ii) Maxi-min criterion. (2 marks)

(iii) Mini-max regret criterion. (4 marks)

(iv) Suppose the investor reads in the newspaper that there is 50% chance of a weak economy, 20% chance of
a mixed economy and a 30% chance of a strong economy.

Advise on the best strategy, given the new information. (2 marks)

(v) Compute the expected value of perfect information. (4 marks)

(Total: 20 marks)

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QUESTION SEVEN
(a) A training institution requires that all its employees participate in one of three sports clubs namely; football, rugby
or chess. In each term, the training institution designates an open selection period within which employees may
change from one club to another.

Prior to the last open selection period, 10% of the employees preferred football, 35% preferred rugby and the
remaining chess. During the open selection period, 25% of the employees taking football switched to rugby, while
15% switched to chess. 30% of the employees taking rugby switched to football and 10% switched to chess,
20% of the employees taking chess switched to football and 10% switched to rugby.

Required:
(i) The transition matrix. (2 marks)

(ii) The percentage of employees that will be taking each sport after the last open selection period. (4 marks)

(iii) Assuming that the trend continues, determine the percentage of the employees who will be taking each
sport in the long-run. (6 marks)

(b) Agritech Consultants have engaged 3 farming trainees; Jim, Ken and Lorn. After six months, the Consultancy
supervisor noted that 5%, 7% and 9% of land planted by Jim, Ken and Lorn respectively had ungerminated plants.
The supervisor had distributed 40%, 25% and 35% of the land respectively.

Required:
(i) Present the above information in a tree diagram. (3 marks)

(ii) The probability of land with ungerminated plants. (2 marks)

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(iii) The probability that land with ungerminated plants was planted by either Ken or Lorn. (3 marks)
(Total: 20 marks)

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.............................................................................................................

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me
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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 6 December 2023. Morning Paper. Time Allowed: 3 hours.

This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
(a) Highlight FOUR disadvantages of the mode as a measure of central tendency. (4 marks)

(b) Find the area between the curve y = x + 2x + 1 , the x axis and the lines x = 1 and x = 2. (4 marks)
x2
(c) Safi Limited manufactures and sells two types of cleaning pads; Osha and Oga. The demand functions for the two
products are given by:
P1 = 1,200 – 2x – 5y

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P2 = 1,700 – 3x – 2y

.c
Where P1 is the unit price of Osha in shillings.
P2 is the unit price of Oga in shillings.

ya
x is the number of units sold of Osha.

en
y is the number of units sold of Oga.

ak
The total cost of producing both products is given by the function TC = 230x + 90y.

Required:
me
So
(i) The number of units of each product required to maximise total profit. (10 marks)

(ii) The maximum total profit. (2 marks)

(Total: 20 marks)

QUESTION TWO
(a) List SEVEN steps of the decision making process. (7 marks)

(b) The following data shows the quarterly sales of cars for Excellent Auto Enterprises for a period of three years:

Sales (Sh.“million”)
Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
2020 25 20 18 30
2021 33 28 26 38
2022 41 37 34 46

Required:
(i) The 4-quarter centred moving average trend values. (4 marks)

(ii) The seasonal multiplicative indices. (5 marks)

(iii) The deseasonalised sales for each quarter. (4 marks)

(Total: 20 marks)

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QUESTION THREE
(a) Highlight FOUR applications of Markov chain analysis in business and finance. (4 marks)

(b) An insurance company has 2 claim assessors who must each give approval to customers who wish to lodge a claim
for compensation. The manager currently has 8 such customers and has asked each assessor to independently rank
the customer claims in order of merit. The rankings are shown below:

Customer A B C D E F G H

Assessor 1 Ranking 4 6 2 1 5 8 6 3

Assessor 2 Ranking 4 8 1 3 7 4 6 2

Required:
Calculate the rank correlation coefficient of the two sets of rankings and comment on the results. (8 marks)

(c) The Revenue Authority Research Department conducted a survey that revealed the number of companies that were
reported as being tax compliant in the last six months of the year 2022 as recorded in the table below:

Month July August September October November December

Number of Companies 326 290 306 260 355 365

Required:
Test the hypothesis that the number of tax compliant companies does not depend on the month of the year at a 1%
significance level. (8 marks)

om
(Total: 20 marks)

.c
QUESTION FOUR

ya
(a) An economy is based on 2 sectors; Agriculture and Manufacturing. Production of a shilling worth of Agriculture
requires an input of 0.3 from the Agriculture sector and 0.1 from the Manufacturing sector.

en
ak
Production of a shilling worth of manufacturing requires an input of 0.2 from the Agriculture sector and 0.4 from
the Manufacturing sector.

Required: me
So
Find the output from each sector that is needed to satisfy a final demand of Sh.12 billion for Agriculture and
Sh.8 billion for Manufacturing. (8 marks)

(b) Consider the following data for 120 students of a College concerning the languages they are studying namely;
French, German and Russian.
• 15 students study Russian and German.
• 58 students study German or French but not Russian.
• 28 students study French only.
• 90 students study French or German.
• 20 students study French and Russian.
• 44 students study at least two of the three languages.
• 20 students do not study any of the three languages.

Required:
(i) Present the above information in a Venn diagram. (6 marks)

(ii) Number of students who study all the three languages. (2 marks)

(iii) Proportion of students who study French. (2 marks)

(iv) Number of students who study at least one language. (2 marks)

(Total: 20 marks)

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QUESTION FIVE
(a) Explain the terms “minimax criterion” and “maximax criterion” as used in decision analysis. (4 marks)

(b) Viwanda Ltd. produces light bulbs that are packed into boxes of 100. The company’s quality control department
indicates that 0.5% of the light bulbs produced are defective.

Required:
(i) The percentage of boxes that will contain no defective light bulbs. (1 mark)

(ii) The percentage of boxes that will contain two or more defective light bulbs. (3 marks)

(c) An accountant wishes to undertake a cost analysis of the annual repair cost for a popular model of a machine as
influenced by the age of the machine. The results obtained are shown below:

Age (years) Repair cost (Sh.“000”)

1 70
3 140
5 230
8 350
7 300
12 570
8 350
4 200

Required:
(i) Pearson’s coefficient of correlation between the age of the machine and the repair cost. Interpret your
result. (4 marks)

om
(ii) Fit a least squares regression line of repair cost on age of machine to the data. (4 marks)

.c
ya
(iii) Interpret the meaning of regression coefficients a and b in the least squares regression line obtained in (c)
(ii) above. (2 marks)

en
ak
(iv) The coefficient of determination. Interpret your result. (2 marks)
(Total: 20 marks)

QUESTION SIX me
So
(a) Explain FOUR limitations of quantitative analysis. (4 marks)

(b) The amount of money spent on purchases by the first 50 customers at a large department store is summarised in
the following table:

Amount spent (Sh.“000”) Number of customers

0–5 3
5 – 10 6
10 – 15 7
15 – 20 11
20 – 25 15
25 – 30 8

Required:
Compute:

(i) The mean amount spent by the 50 customers. (4 marks)

(ii) The standard deviation of the amount spent by the 50 customers. (4 marks)

(iii) The coefficient of variation of the amount spent by the 50 customers. (2 marks)

(iv) The coefficient of Kurtosis and comment on your answer. (6 marks)

(Total: 20 marks)

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QUESTION SEVEN
(a) Explain the following terms as used in statistics:

(i) Sample statistic. (2 marks)

(ii) Population parameter. (2 marks)

(iii) Sampling distribution. (2 marks)

(b) A manufacturer of dresses makes two types of dresses; Standard and Executive. Each Standard dress requires 10
labour hours from the cutting department and 30 labour hours from the sewing department. Each Executive dress
requires 20 labour hours from the cutting department and 40 labour hours from the sewing department. The
maximum labour hours available in the cutting department and the sewing department are 320 and 540
respectively. The company makes a profit of Sh.500 on each Standard dress and Sh.800 on each Executive dress.

Required:
(i) Formulate a mathematical model for the above linear programming problem. (4 marks)

(ii) Using the simplex method, determine the number of Standard and Executive dresses that should be
produced in order to maximise profit. (10 marks)
(Total: 20 marks)
.............................................................................................................

om
.c
ya
en
ak
me
So

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 23 August 2023. Morning Paper. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything
on this paper.

QUESTION ONE
(a) Explain the meaning of the following terms as used in decision theory:

(i) Decision alternative. (2 marks)

(ii) State of nature. (2 marks)
(iii) Conditional payoff. (2 marks)
(iv) Opportunity cost. (2 marks)

om
(b) The following data relates to the ages of 100 students attending a workshop on personal branding organised by the

.c
student welfare officials of Pride Business College:

ya
Age (in years) Number of students

en
Below 20 2
20 – 25 4

ak
25 – 30 10

me
30 – 35 20
35 – 40 32
So
40 – 45 18
45 – 50 10
Above 50 4
Thereafter, 15% of the youngest students and 5% of the oldest students attending the workshop were selected to
attend a further training on curriculum vitae writing.
Required:
(i) Determine the youngest age of the students selected to attend the training on curriculum vitae writing.
(4 marks)
(ii) Determine the highest age of the students selected to attend the training on curriculum vitae writing.
(4 marks)
(iii) Calculate the median age of the students who remained after the selection of students to attend the
training on curriculum vitae writing. (4 marks)
(Total: 20 marks)

QUESTION TWO
(a) State FOUR applications of mathematical functions in business. (4 marks)
(b) Explain the following terms as used in set theory:
(i) Disjoint set. (2 marks)
(ii) Complement of a set. (2 marks)
(iii) Union of a set. (2 marks)
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(c) The following regression equation was obtained for a class of 24 intermediate level students:

ŷ = 4.3 + 0.029X1 + 0.029X2 + 0.017X3

Standard error 0.0074 0.013 0.007

Where:
ŷ = Students score on a theory examination

X1 = Students rank (from the bottom) in high school

X2 = Students verbal aptitude score

X3 = A measure of student character

Required:
(i) Calculate the t ratio and the 95% confidence interval for the independent variables X1, X2 and X3.
(6 marks)

(ii) Determine the regressor which gives the strongest evidence of being statistically discernible. (2 marks)

(iii) In writing up a final regression, explain whether one should keep the last regressor (X3) in the equation or
drop it. (2 marks)
(Total: 20 marks)

QUESTION THREE
(a) State FOUR characteristics of the normal distribution. (4 marks)

(b) A firm manufactures two models of bicycles; mountain bike and BMX. The firm earns profit of Sh.5,000 and

om
Sh.6,000 on mountain bikes and BMX respectively. Both models are produced in three departments; assembly,

.c
fitting and painting. The time required per model produced and the time available per week (in hours) are given in
the table below:

ya
en
Departments Required time Available time
Mountain bike BMX

ak
Assembly 2 3 180
Fitting 2 1 120
Painting 3 3 240
me
So
Required:
(i) Formulate the above problem as a linear programming problem in order to maximise profits. (4 marks)

(ii) Graphically show how the manufacturer should schedule his production to maximise profits. (8 marks)

(iii) Compute and interpret the slack value for the painting department. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain the following terms as used in Markovian analysis:

(i) Transition matrix. (2 marks)

(ii) Equilibrium state. (2 marks)

(iii) Initial probability vector. (2 marks)

(b) The following pay-off matrix was developed by a company showing profits (in shillings) obtained from launching
four different products P1, P2, P3 and P4 under four different states of nature:
State of nature
Product S1 S2 S3 S4
P1 5,000 9,000 7,000 8,000
P2 7,000 4,000 6,000 12,000
P3 10,000 8,000 9,000 7,000
P4 14,000 5,000 7,000 6,000
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 The probabilities for S1, S2, S3 and S4 are given as 0.30, 0.40, 0.20 and 0.10 respectively.

Required:
(i) Advise on the best course of action using the Mini-Max Regret Criterion. (4 marks)

(ii) Advise on the best course of action using the Expected Opportunity Loss Criterion. (4 marks)

(iii) An expert has offered to provide perfect information at a cost of Sh.2,500.

Advise the management of the company on whether or not to acquire the perfect information. (6 marks)
(Total: 20 marks)

QUESTION FIVE
(a) The output of an acre of land is assumed to be normally distributed with an average of 52 bags of maize and a
standard deviation of 3.2 bags.

Required:
The probability that the output of an acre of land:

(i) Is greater than 48 bags. (2 marks)

(ii) Is greater than 60 bags. (2 marks)

(iii) Is less than 45 bags. (2 marks)

(iv) Lies between 50 bags and 60 bags. (2 marks)

om
(b) BMM Limited produces X number of items of product “Wonder” in a month at a cost described by the equation
C = 5x + 4,000. The Management Accountant of the firm estimates that at a selling price of Sh.22 per unit, 18,000

.c
units of “Wonder” could be sold. If the firm increases the unit price to Sh.30, only 10,000 units of “Wonder” can

ya
be sold.

en
Required:

ak
(i) Determine the number of units of product “Wonder” that BMM Limited should produce and sell in order
to maximise profit. (6 marks)

(ii) Determine the selling price per unit charged at the maximum profit. me (2 marks)
So
(iii) Calculate the break-even number of units. (4 marks)
(Total: 20 marks)

QUESTION SIX
(a) Distinguish between a “two-tailed test” and a “one tailed test” as used in inferential statistics. (4 marks)

(b) The data below shows the sales made by Kuza Limited over a period of 6 years:

Year 2017 2018 2019 2020 2021 2022

Sales (in millions of shillings) 80 78 72 68 70 82

Required:
(i) The sales forecast for the year 2023 using exponential smoothing (use a smoothing constant of 0.2).
(4 marks)

(ii) The sales forecast for the year 2023 using the ordinary least squares method. (6 marks)

(iii) Using suitable computations, advise Kuza Ltd. on the preferred forecast method. (6 marks)
(Total: 20 marks)

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QUESTION SEVEN
(a) With the aid of diagrams, describe the THREE types of Kurtosis. (6 marks)

(b) Consider the following hypothesis:

HO : µ = 400
HI : µ = 400

For a random sample of 12 observations, the sample mean was 407 and the sample standard deviation was 6.

Required:
Using a significance level of 0.1, advise whether the null hypothesis should be accepted or rejected. (6 marks)

(c) A mobile phone manufacturer orders for a special component called PH-2 from four different suppliers; S1, S2, S3
and S4. 20% of the components are purchased from S1, 10% from S2, 30% from S3 and the remainder from S4.

From past experience, the manufacturer knows that 2% of the components from S1 are defective, 4% of the
components from S2 are defective, 3% of the components from S3 are defective and 1% of the components from S4
are defective. All components are placed directly in the store before inspection. A worker selects a component for
use and finds it defective.

Required:
(i) The probability that the component was supplied by S1. (4 marks)

(ii) The probability that the component was supplied by S2 or S4. (4 marks)
(Total: 20 marks)
.............................................................................................................

om
.c
ya
en
ak
me
So

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 26 April 2023. Morning Paper. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything
on this paper.

QUESTION ONE
(a) A survey was conducted to establish the number of faulty components from a production process. The results
indicated that 0.01% of the components produced were faulty. Each machine produces 10,000 components.

Required:
The probability of there being 3 or more faulty components assuming a Poisson probability distribution. (4 marks)

om
(b) The Sales Manager of XYZ Ltd. estimates that the revenue function of the company is linear in nature. He has
observed that at a selling price of Sh.200, the company sold 6,000 units. When the company increased the selling

.c
price per unit to Sh.700, the company sales decreased to 1,000 units.

ya
The Cost Accountant of the company estimates that the cost function is quadratic in nature. The following data

en
was provided:

ak
Number of units (Q) 100 200 400
Total cost (Sh.) TC 79,000 76,000 124,000
me
So
Required:
(i) The revenue function. (4 marks)

(ii) The total cost function. (8 marks)

(iii) The profit maximising level of production. (4 marks)

(Total: 20 marks)

QUESTION TWO
(a) A survey was recently conducted to determine the preferences of 360 customers with regard to three brands of
cooking oil namely; sunflower oil, coconut oil and olive oil.

The following results were obtained:

220 customers preferred sunflower oil.

160 customers preferred coconut oil.
180 customers preferred olive oil.
80 customers preferred both sunflower oil and coconut oil.
110 customers preferred both sunflower oil and olive oil.
100 customers preferred both coconut oil and olive oil.
50 customers preferred none of the brands of cooking oil.

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 Required:
(i) Present the above information in the form of a Venn diagram. (4 marks)

(ii) Determine the probability that a customer picked at random prefers all the three brands of cooking oil.
(2 marks)

(iii) Determine the probability that a customer picked at random prefers at least two brands of cooking oil.
(2 marks)

(b) The time taken to complete a particular task was measured for 250 workers and the results were as shown below:

Time taken in minutes Number of workers

0–5 2
5 – 10 2
10 – 15 3
15 – 20 5
20 – 25 5
25 – 30 18
30 – 40 X
40 – 50 100
50 – 60 Y
Above 60 15

Required:
(i) Determine the value of X given that the median time taken to complete the task is 40.5 minutes. (6 marks)

(ii) Determine the value of Y given that the modal time taken to complete the task is 41.5 minutes. (6 marks)

om
(Total: 20 marks)

.c
QUESTION THREE
(a) Using the information given below, determine the level of output necessary from each sector to support a final

ya
demand of 500 units for sector X1, 1,600 units for sector X2 and 2,000 units for sector X3:

en
Output Inputs to

ak
X1 X2 X3 Final demand

me
(units)
X1 40 40 40 680
So
X2 40 80 80 1,400
X3 400 1,200 280 2,120
(12 marks)

(b) The monthly rent paid by residents of Hill View Estate is found to be normally distributed with a mean of
Sh.22,150 and a standard deviation of Sh.8,900.

Required:
On the basis of a sample of 200 residents:

(i) Construct a 95% confidence interval for the monthly rent paid. (3 marks)

(ii) Test the hypothesis that the amount paid in monthly rent is Sh.20,000 at a 5% significance level.
(5 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Differentiate between the following terms:

(i) “Coefficient of skewness” and “coefficient of variation”. (4 marks)

(ii) “Arithmetic mean” and “harmonic mean”. (4 marks)

(b) Mr Rajab Omar is the Marketing Manager of Tintex Limited. He gathered data on the number of sales people
engaged in a month and the sales made in the last ten months of the year 2022.
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 The results were as follows:

Year 2022 Number of sales people engaged Sales

Month Sh.“000”
March 12 23
April 11 22
May 14 23
June 12 24
July 15 28
August 11 22
September 13 23
October 14 26
November 10 20
December 9 17

Required:
(i) Estimate the total sales function using the ordinary least squares method. (10 marks)

(ii) Predict the sales made in the month of January 2023 when 19 sales people were engaged. (2 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Outline FOUR properties of a set. (4 marks)

(b) A trader purchased 7 cartons of apples and 4 cartons of bananas at a total cost of Sh.32,500 in the month of January.
In the month of February, he purchased 9 cartons of apples and 6 cartons of bananas at a total cost of Sh.43,500.

om
Required:
Calculate the cost of a carton of apples and a carton of bananas using matrix algebra. (6 marks)

.c
ya
(c) Red Rose Limited has developed a new washing detergent. The company is considering whether or not to market test
the detergent prior to its launch. Market testing will cost Sh.50 million which may increase the likelihood of success

en
of the product if it passes the test. The probability of passing the test is 0.8. If the product fails the test, it is regarded
as worthless.

ak
me
Previous data collected was as follows: So
Probability of No testing Market testing
High success 0.20 0.40
Moderate success 0.35 0.40
Low success 0.45 0.20
Launching the product will cost Sh.150 million and the estimated profits are as follows:

High success Sh.900 million

Moderate success Sh.450 million
Low success Sh.225 million

Red Rose Limited has the option of selling the product design for Sh.250 million.

Required:
(i) A decision tree showing the pay-off and the expected monetary value (EMV) of each decision. (8 marks)

(ii) Advise the management of the company on the best course of action and the related expected monetary
value (EMV). (2 marks)
(Total: 20 marks)
QUESTION SIX
(a) In the context of time series analysis, distinguish between the following terms:

(i) “Mean absolute deviation” and “mean squared error”. (4 marks)

(ii) “Additive model” and “multiplicative model”. (4 marks)

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(b) The quarterly profits of Nyota Limited during the years 2019, 2020, and 2021 were as tabulated below:

Year Profits in Sh.“million”

2019 Quarter 1 Quarter 2 Quarter 3 Quarter 4
2019 105 138 116 140
2020 104 122 103 146
2021 113 149 141 162

Required:
(i) The three-quarter moving averages. (4 marks)

(ii) The seasonal index for each quarter assuming the multiplicative model. (4 marks)

(iii) Derive the deseasonalised profits using the multiplicative model. (4 marks)
(Total: 20 marks)

QUESTION SEVEN
(a) Explain the meaning of the following terms in the context of probability theory:

(i) Mutually exclusive events. (2 marks)

(ii) Independent events. (2 marks)

(b) A linear programming problem has been formulated as below:

Objective function: Max Z = 14x + 10y

om
Subject to: 1. 4x + 3y ≤ 240

.c
2. 2x + y ≤ 100

ya
3. y ≤ 50

en
4. x, y >0

ak
Required:
(i) Optimal production for x and y using the simplex method.
me (12 marks)
So
(ii) The slack values for each constraint. (2 marks)

(iii) The shadow price for each constraint. (2 marks)

(Total: 20 marks)
.............................................................................................................

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 7 December 2022. Morning Paper. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything
on this paper.

QUESTION ONE
(a) State FOUR characteristics of a good measure of dispersion. (4 marks)

(b) Explain the meaning of the following terms as used in set theory:

(i) Venn diagram. (2 marks)

om
(ii) Complement of a set. (2 marks)

.c
(iii) Union of a set. (2 marks)

ya
(c) The management team of Stage Supermarket is interested in determining whether there is any relationship between

en
the distance from customers’ residences to the supermarket and the number of visits made to the supermarket in a
particular period.

ak
The following results were obtained:

Distance from customers’ Number of visits made me

So
residences to the supermarket
(in Kilometres)
1 42
2 26
3 38
4 36
5 34
6 34
7 28
8 40
9 20
10 22

Required:
(i) Determine whether there is any relationship between the number of visits made to the supermarket and
the distance from customers’ residences to the supermarket. (8 marks)

(ii) Calculate the decrease in the number of visits to the supermarket with each unit increase in distance of
customers’ residences from the supermarket.
(2 marks)
(Total: 20 marks)
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QUESTION TWO
(a) Shoetec Ltd., a manufacturer of stylish shoes, estimates that at full scale production, it would sell between 2,000
and 3,000 pairs of shoes.

The total monthly revenue in thousands of shillings over this range is represented by the function

TR = 3x2 + 7x.

The firm estimates that the marginal cost (MC) in thousands of shillings could be represented by the function

MC = 5x2 – 3x – 2 and fixed cost (FC) will be Sh.1,000 per month.

Where x is the monthly output in thousands of pairs of shoes.

Required:
(i) Derive the average cost and average revenue functions of the firm. (4 marks)

(ii) Calculate the profit maximising output. (4 marks)

(iii) Calculate the price charged upon maximising profit and how much each pair of shoes would cost.
(2 marks)

(b) An examination was administered to a group of students and the results were as summarised below:

Result % of candidates
Passed with distinction 10%

om
Passed with credit 60%

.c
Failed 30%

ya
A candidate fails the examination if he/she obtains less than 40% in the examination. In order to pass with distinction,

en
the candidate must obtain at least 75% in the examination.

ak
Required:
Calculate the mean and standard deviation of the distribution of marks assuming that the marks scored are normally
distributed.
me (10 marks)
So
(Total: 20 marks)

QUESTION THREE
(a) Distinguish between the following terms as used in probability:

(i) “Conditional probability” and “marginal probability”. (4 marks)

(ii) “Discrete probability distributions” and “continuous probability distributions”. (4 marks)

(b) The banking industry in a given country is controlled by three banks Faida Bank, Akiba Bank and Ahadi Bank. As
at 31 December 2020, Faida Bank controlled 30% of the market share, Akiba Bank controlled 50% of the market
share and Ahadi Bank controlled 20% of the market share.

A survey was conducted on the market shares of the three banks as at 31 December 2021 and revealed the
following:

1. Faida Bank had retained 80% of its market share and lost 15% and 5% to Akiba Bank and Ahadi Bank
respectively.
2. Akiba Bank had lost 10% and 20% of its market share to Faida Bank and Ahadi Bank respectively.
3. Ahadi Bank had lost 5% of its market share to Faida Bank and 5% to Akiba Bank.
4. There were no significant changes in the banking habits of the customers during the year ended
31 December 2021.

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 Required:
(i) Determine the transition matrix from the above information. (2 marks)

(ii) Determine the market shares of the three banks as at 31 December 2021. (3 marks)

(iii) The steady state market shares of the three banks. (7 marks)
(Total: 20 marks)

QUESTION FOUR
(a) The Production Manager of Mechtex Ltd., a manufacturer of machines, is investigating a claim by customers
about machine A and machine B that it manufactures.
The claim is that machine A has a longer useful life than machine B.
A sample of 60 machine As taken from the market reveals that the machine has a mean useful life of 28,000 hours
with a standard deviation of 900 hours. A sample of 80 machine Bs has a mean useful life of 30,000 hours with a
standard deviation of 1,000 hours.

Required:
Advise the Production Manager of Mechtex Ltd. if there is a significant difference in the useful lives of the
machines. (8 marks)
Use a significance level of 5%.

(b) The following data relate to the number of computers sold each day over the last 240 working days by a leading
computer firm.

Number of computers sold Number of days

om
10 – 15 12

.c
15 – 20 18
20 – 25 35

ya
25 – 30 42
30 – 35 50

en
35 – 40 45

ak
40 – 45 30
45 – 50 8
Required: me
So
(i) The modal number of computers sold. (2 marks)

(ii) The quartile deviation of the number of computers sold. (6 marks)

(iii) The quartile coefficient of skewness of the number of computers sold. Interpret your results. (4 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Highlight FOUR advantages of decision tree analysis as a tool for decision making. (4 marks)

(b) State FOUR characteristics of the binominal distribution. (4 marks)

(c) The management of a wall paint manufacturing company is faced with the problem of choosing one of three products
to add to its existing product line. The potential demand for each product may turn out to be good, moderate or poor
with probabilities estimated as 0.75, 0.15 and 0.10 respectively.

The estimated profit or loss under the three states of demand with respect to each product is outlined below:

Type of demand
Product Good Moderate Poor
Silk 70,000 55,000 - 10,000
Matt 100,000 40,000 - 6,000
Gloss 120,000 50,000 - 40,000

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 Required:
(i) Advise the management on the choice of product based on the expected monetary valve (EMV) criterion.
(4 marks)
(ii) Compute the expected opportunity loss for each decision.

Which decision would you recommend based on the expected opportunity loss? (4 marks)

(iii) Compute the expected value of perfect information. (4 marks)

(Total: 20 marks)

QUESTION SIX
(a) Explain THREE roles of quantitative analysis in the decision making of organisations. (6 marks)

(b) The data below relate to the profits of Soko Yetu Groceries (in thousands of shillings) over a period of four years.

Quarter
Year 1 2 3 4
2019 12 9 11 14
2020 13 10 17 20
2021 15 13 20 22
2022 16 12 21 -

Required:
(i) Determine the trend equation using the least squares method. (8 marks)

om
(ii) Calculate the seasonal index for each quarter using the multiplicative model. (6 marks)

.c
(Total: 20 marks)

ya
QUESTION SEVEN

en
(a) Explain THREE decision making environments. (6 marks)

ak
(b) Define the following terms as used in decision making:

(i) Value of perfect information.

me (1 mark)
So
(ii) Regret. . (1 mark)

(c) Majux Limited manufactures two types of fruit juices; yellow juice and red juice. 1 packet of yellow juice requires
3 minutes for cutting of fruits, 6 minutes for blending, 7 minutes for cooling and 2 minutes for packaging. 1 packet of
red juice requires 5 minutes for cutting of fruits, 4 minutes for blending, 10 minutes for cooling and 5 minutes for
packaging.

The company’s workforce can only spend a maximum of 60 hours on cutting, 711/3 hours on blending, 105 hours on
cooling and 45 hours on packaging. The profit contribution is Sh.450 for each packet of yellow juice and Sh.380 for
each packet of red juice.

Required:
(i) Formulate a linear programming model from the above information. (5 marks)

(ii) Use the graphical method to solve the linear programming model formulated in (c) (i) above. (5 marks)

(iii) Calculate the slack or surplus values for cutting of fruits and interpret its meaning. (2 marks)
(Total: 20 marks)
.............................................................................................................

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 3 August 2022. Morning paper. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything
on this paper.

QUESTION ONE
(a) Soundex Company has received an order to supply 900 tables, 1,200 desks and 2,000 chairs. The management of
Soundex Company has decided that 500 tables, 800 desks and 1,300 chairs could be supplied from their city centre
branch and the balance of the order could be filled from their industrial area branch.

Production of each table requires 3 hours in the machining department, 5 hours in the assembly department and
4 hours in the finishing department. Production of a desk requires 4 hours in the machining department, 8 hours in

om
the assembly department and 6 hours in the finishing department. Production of a chair requires 2 hours in the
machining department, 3 hours in the assembly department and 5 hours in the finishing department.

.c
The cost of an hour in the machining, assembly and finishing department is Sh.50, Sh.100 and Sh.150 respectively.

ya
en
Required:
Using matrix algebra:

ak
(i) Calculate the total number of hours required at each branch. (6 marks)

(ii)
me
Calculate the total cost incurred at each branch and the total cost incurred by Soundex Company to supply
So
the order. (4 marks)

(b) The data below relates to the sales of Madi and Sons Electrical Company for the six months ending 30 June 2022:
Month January February March April May June
Sales (Sh.“000”) 80 76 78 82 72 82

Required:
Using exponential smoothing with a smoothing constant (α) of 0.25, determine the forecast sales for the month of
July 2022. (4 marks)

(c) The number of employees working online during a particular week was recorded as shown below:

Day of the week Number of employees

Monday 207
Tuesday 185
Wednesday 203
Thursday 180
Friday 225
Total 1,000

Required:
Test the hypothesis that the number of employees who worked online does not depend on the day of week. Use a
significance level of 1%. (6 marks)
(Total: 20 marks)

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QUESTION TWO
(a) TMA Company produces three products; Standard, Deluxe and Luxury in three of its departments which are
Cutting, Assembly and Finishing. The total available labour hours per week for Cutting, Assembly and Finishing
departments are 180, 300 and 240 respectively.

To produce two units of Standard requires 240 minutes in the Cutting department, half the amount of time in the
Assembly department and same amount of time in the Finishing department as in the Cutting department.

To produce one unit of Deluxe requires 60 minutes, 180 minutes and 60 minutes in Cutting, Assembly and
Finishing departments respectively.

To produce three units of Luxury requires 180 minutes in Cutting department and twice the amount of time in both
Assembly and Finishing departments.

The contribution per unit from Standard, Deluxe and Luxury is Sh.6, Sh.5 and Sh.2 per unit respectively.

Required:
(i) Formulate the above problem as a linear programming model. (6 marks)

(ii) Prepare an initial simplex tableau to solve the above model. (4 marks)

(b) The above problem was solved using a statistical software and the final simplex tableau is provided below:

Model variables Slack variables

Basis X1 X2 X3 S1 S2 S3 R.H.S
X1 1 0 ⅕ ⅗ –⅕ 0 48
X2 0 1 ⅗ –⅕ ⅖ 0 84

om
S3 0 0 1 –1 0 1 60
Ƶ 0 0 ⅕ 13/5 ⅘ 0 708

.c
Required:

ya
(i) Explain whether the solution is optimal. Justify your answer. (2 marks)

en
(ii) Determine the optimal solution for TMA Company. (2 marks)

ak
(iii) Determine the slack or surplus value for each constraint. State which one is a slack and which one is a

me
surplus. (4 marks)
So
(iv) Determine the shadow price for each constraint. (2 marks)
(Total: 20 marks)

QUESTION THREE
(a) (i) Explain the term “Markov analysis”. (2 marks)

(ii) Highlight four assumptions of Markov analysis. (4 marks)

(b) Differentiate between the following sets of terms as used in hypothesis testing:

(i) “Null hypothesis” and “alternative hypothesis”. (2 marks)

(ii) “Parameter” and “statistic”. (2 marks)

(c) The following payoff matrix shows the potential profits in millions of shillings which are expected to arise from
launching four products S1, S2, S3 and S4 for each level of demand; low, moderate or high.

Payoff matrix
Demand
Product Low Moderate High
S1 15 22 29
S2 22 24 28
S3 32 23 34
S4 35 22 33

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 Required:
Assuming that the products are mutually exclusive, evaluate the optimal decision using:

(i) Maximax criterion. (3 marks)

(ii) Maximin criterion. (3 marks)

(iii) Minimax regret criterion. (4 marks)

(Total: 20 marks)

QUESTION FOUR
(a) A proposal to teach longer hours on weekdays rather than have weekend classes was put forward by a subject
lecturer to his students.

The following results were obtained:

Opinion
Students gender In favour Opposed Undecided
Male 40 10 15
Female 20 30 20

Required:
Calculate the probability that a student selected at random will be:

(i) Female and in favour of the proposal. (2 marks)

om
(ii) Either male or opposed to the proposal. (2 marks)

.c
(iii) Undecided given that the student is female. (2 marks)

ya
(b) The Production Manager of AMIK Company has provided the following information relating to the number of units

en
produced per day in the last 172 days:

ak
Production per day (units) Frequency in days

me
230 – 260 12
So
260 – 290 18
290 – 320 25
320 – 350 52
350 – 380 35
380 – 410 15
410 – 440 9
440 – 470 6

Required:
(i) The modal production. (2 marks)

(ii) The median production. (2 marks)

(iii) The quartile deviation of the production. (6 marks)

(c) A curve is defined by the quadratic function

y = x2 – 15x + 54

Required:
(i) Determine the roots of the equation using the factorisation method. (2 marks)

(ii) By using differentiation, determine the coordinates of the turning point of the curve. (2 marks)
(Total: 20 marks)

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QUESTION FIVE
(a) ABC Ltd. has introduced a new product branded “Nilan”. The Production Manager wishes to establish the
relationship between the total cost of production and the number of units produced. The Production Manager also
believes that the relationship between the total cost of producing “Nilan” and the number of units produced is linear
in nature.

The Production Manager has gathered the following data on the production for the last 8 months:

Month Units produced “000” Total cost of production Sh.“000”

December 2021 675 6,900
January 2022 630 6,480
February 2022 825 6,990
March 2022 645 7,200
April 2022 900 8,560
May 2022 600 6,720
June 2022 510 6,300
July 2022 550 5,250

Required:
(i) Estimate the total cost function using the ordinary least squares method. (7 marks)

(ii) The coefficient of determination between the number of units produced and the total cost of production.
(2 marks)

(iii) Interpret your answer in (a) (ii) above. (1 mark)

(b) A survey of 850 residents of a certain town aimed at finding out the brand of vehicles owned, produced the following

om
results:

.c
316 residents owned Nissan vehicles.

ya
160 residents owned Honda vehicles.
360 residents owned Toyota vehicles.

en
120 residents owned both Nissan and Toyota vehicles.
56 residents owned both Nissan and Honda vehicles.

ak
80 residents owned both Honda and Toyota vehicles.

me
240 residents did not own any of the three brands of vehicles. So
Required:
(i) Present the above information in the form of a Venn diagram. (5 marks)

(ii) The number of residents who own all the three brands of vehicles. (3 marks)

(iii) The number of residents who own just one of the three brands of vehicles. (2 marks)
(Total: 20 marks)

QUESTION SIX
(a) Outline four qualities of a good average. (4 marks)

(b) The weights of 1,000 items are normally distributed with a mean weight of 200 kgs and a standard deviation of
22 kgs.
Required:
(i) Determine the number of items that have weights between 210 kgs and 220 kgs. (2 marks)

(ii) Determine the number of items that have weights between 180 kgs and 230 kgs. (2 marks)

(iii) Calculate the weight below which 20% of the items fall. (2 marks)

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(c) The data below shows the probability distribution of profits earned by firms in the manufacturing industry:
Profit Sh.“million” Probability
10 – 20 0.05
20 – 30 0.05
30 – 40 0.10
40 – 50 0.15
50 – 60 0.30
60 – 70 0.10
70 – 80 0.20
80 – 90 0.05
Required:
(i) The expected profit. (4 marks)
(ii) The expected standard deviation. (4 marks)
(iii) The coefficient of variation. (2 marks)
(Total: 20 marks)
QUESTION SEVEN
(a) A technician at Light Industries Ltd. has established that the probability of a production process producing defective
output is 0.2. A total of 60 units are produced from the process in a certain production period.
Required:
(i) The probability that exactly 10 of the units will be defective assuming a poisson distribution. (3 marks)
(ii) The probability that exactly 10 of the units will be defective assuming a binomial distribution. (2 marks)
(iii) The expected number and standard deviation of units expected to be defective assuming a binomial
distribution. (2 marks)

om
(b) XYZ Ltd. produces and sells a product branded “Xedo”. The product is produced in two departments; manufacturing

.c
and assembly.

ya
The marginal revenue (MR) of XYZ Ltd. is given by the function

en
MR = 600 – 0.12q
Where q is the number of units produced and sold.

ak
The total variable cost (VC) for the two departments is given as follows:

me
Manufacturing department
VC = 60q + 0.06q2
So
Assembly department
VC = 12q + 0.03q2
The total fixed cost for each of the departments is as follows:
Sh.
Manufacturing department 40,000
Assembly department 120,000
Required:
(i) The total revenue, total cost and profit functions of XYZ Ltd. (6 marks)
(ii) The profit maximising level of output. (2 marks)
(iii) The maximum profit of XYZ Ltd. (1 mark)

(c) Given that A = 2 –1 2 and

1 0 3
3 –2 –5
B = 3 –6 –3
7 –14 –7
–1 2 1
Show that AB≠ 0 (4 marks)
(Total: 20 marks)
.............................................................................................................
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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

PILOT PAPER

QUANTITATIVE ANALYSIS

December 2021. Time Allowed: 3 hours.

Answer any FIVE questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings.

QUESTION ONE
(a) Mashariki Enterprises started business in January 2018 selling photo copiers in the City. The following information
relates to sales and enquiries made during the year ended 31 December 2020.

Sales calls (x) Copiers sold (y)

om
96 41

.c
40 41
104 51

ya
128 60

en
164 61
76 29

ak
72 39
88 50
36 28
me
So
84 43
180 70
132 56

Required:
Derive the regression equation of y on x. (12 marks)

(b) Explain four characteristics of Karl Pearson coefficient of correlation. (8 marks)

(Total: 20 marks)
QUESTION TWO
An electronics dealer in Nakuru has labelled a certain electrical component with numbers 1 – 50. These components are
normally sold to 5 specific customers who pick one each on week days only. Incidentally, the components labelled numbers
3, 18, 12, 26 and 46 are defective.

Required:
(a) The probability that one customer will have drawn five defective components by the end of 5 weeks. (15 marks)

(b) The probability that two customers will have drawn two defective components each, two none and the other
components, in two weeks. (5 marks)
(Total: 20 marks)

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QUESTION THREE
(a) Explain the difference between the following terms:

(i) Type 1 and Type II errors. (4 marks)

(ii) One-tail test and two-tail test. (4 marks)

(iii) Normal distribution and t-distribution. (4 marks)

(b) The manufacturer of the TyroX radical truck tyre claims that the mean mileage the tyre can be driven before the
thread wears out is 60,000 km, assuming the mileage wear follows the normal distribution and a standard deviation
of 5,000 km. In a sample of 48 tyres, the mileage was found to be 59,500 km.

Required:
Test whether this observation is different from the claim by the manufacturer at 5% significance level. (8 marks)
(Total: 20 marks)

QUESTION FOUR
Agro manufacturers produce three products; Chat, Item and Wit (in thousands) whose demand and cost functions are given as
follows:

Chat: AR = 16 – 3Q ; ATC = 4Q + 8
Item: P = 10 – Q – 2Q2; ATC = Q + 4
Wit: P = 100 – ½Q ; ATC = 300 + 2Q – 2Q2

Required:
(a) Output and price levels that will maximize profits. (9 marks)

om
(b) Maximum profit for each product. (9 marks)

.c
(c) Total profit for the production of the three products at the optimal point. (2 marks)

ya
(Total: 20 marks)

en
QUESTION FIVE

ak
The frequency distribution of after tax earnings for Applewood Ltd. for 180 months to 31 December 2020 was as follows:

Profit after tax Sh.“000” (X) Frequency (f)

me
So
20,000  x < 60,000 8
60,000  x < 100,000 11
100,000  x < 140,000 23
140,000  x < 180,000 38
180,000  x < 220,000 45
220,000  x < 260,000 32
260,000  x < 300,000 19
300,000  x < 340,000 4

Required:
(a) Modify the formula given below for median to derive another one for:

(i) 25th percentile of the distribution. (6 marks)

(ii) 75th percentile of the distribution. (6 marks)

(Ensure to indicate what each of the symbols used stand for)

(b) Evaluate:
(i) 2nd decile of the distribution. (4 marks)

(ii) 8th decile of the distribution. (4 marks)

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 L = n–C i
2
f

Where: L = Lower class boundary of the median class

n = Sample size

C = Cumulative frequency of the class below the median class

f = Frequency of the median class

i + Class interval.
(Total: 20 marks)

QUESTION SIX
(a) Write short notes on the following formulas in relation to time series analysis:

(i) Y=TxCxSxI (4 marks)

(ii) YT = bo + bIx 4 marks)

(iii) In YT = In bo + In bI (4 marks)

(iv) bI = xy – n XY (4 marks)

x2 – nX2

om
(b) Explain the process of exponential smoothing. (4 marks)
(Total: 20 marks)

.c
ya
QUESTION SEVEN
In the context of linear programming, explain each of the following:

en
ak
(a) Constrained optimisation. (4 marks)

me
(b) Inequality constraints. (4 marks)
So
(c) Objective function. (4 marks)

(d) Constrained minimisation. (4 marks)

(e) Non-negativity constraints. (4 marks)

(Total: 20 marks)
…………………………………………………………………………………….

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To Get Answers Call/WhatsApp 0707 737 890

 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

QUANTITATIVE ANALYSIS

WEDNESDAY: 3 August 2022. Morning paper. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Show ALL your workings. Do NOT write anything
on this paper.

QUESTION ONE
(a) Soundex Company has received an order to supply 900 tables, 1,200 desks and 2,000 chairs. The management of
Soundex Company has decided that 500 tables, 800 desks and 1,300 chairs could be supplied from their city centre
branch and the balance of the order could be filled from their industrial area branch.

Production of each table requires 3 hours in the machining department, 5 hours in the assembly department and
4 hours in the finishing department. Production of a desk requires 4 hours in the machining department, 8 hours in

om
the assembly department and 6 hours in the finishing department. Production of a chair requires 2 hours in the
machining department, 3 hours in the assembly department and 5 hours in the finishing department.

.c
The cost of an hour in the machining, assembly and finishing department is Sh.50, Sh.100 and Sh.150 respectively.

ya
en
Required:
Using matrix algebra:

ak
(i) Calculate the total number of hours required at each branch. (6 marks)

(ii)
me
Calculate the total cost incurred at each branch and the total cost incurred by Soundex Company to supply
So
the order. (4 marks)

(b) The data below relates to the sales of Madi and Sons Electrical Company for the six months ending 30 June 2022:
Month January February March April May June
Sales (Sh.“000”) 80 76 78 82 72 82

Required:
Using exponential smoothing with a smoothing constant (α) of 0.25, determine the forecast sales for the month of
July 2022. (4 marks)

(c) The number of employees working online during a particular week was recorded as shown below:

Day of the week Number of employees

Monday 207
Tuesday 185
Wednesday 203
Thursday 180
Friday 225
Total 1,000

Required:
Test the hypothesis that the number of employees who worked online does not depend on the day of week. Use a
significance level of 1%. (6 marks)
(Total: 20 marks)

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QUESTION TWO
(a) TMA Company produces three products; Standard, Deluxe and Luxury in three of its departments which are
Cutting, Assembly and Finishing. The total available labour hours per week for Cutting, Assembly and Finishing
departments are 180, 300 and 240 respectively.

To produce two units of Standard requires 240 minutes in the Cutting department, half the amount of time in the
Assembly department and same amount of time in the Finishing department as in the Cutting department.

To produce one unit of Deluxe requires 60 minutes, 180 minutes and 60 minutes in Cutting, Assembly and
Finishing departments respectively.

To produce three units of Luxury requires 180 minutes in Cutting department and twice the amount of time in both
Assembly and Finishing departments.

The contribution per unit from Standard, Deluxe and Luxury is Sh.6, Sh.5 and Sh.2 per unit respectively.

Required:
(i) Formulate the above problem as a linear programming model. (6 marks)

(ii) Prepare an initial simplex tableau to solve the above model. (4 marks)

(b) The above problem was solved using a statistical software and the final simplex tableau is provided below:

Model variables Slack variables

Basis X1 X2 X3 S1 S2 S3 R.H.S
X1 1 0 ⅕ ⅗ –⅕ 0 48
X2 0 1 ⅗ –⅕ ⅖ 0 84

om
S3 0 0 1 –1 0 1 60
Ƶ 0 0 ⅕ 13/5 ⅘ 0 708

.c
Required:

ya
(i) Explain whether the solution is optimal. Justify your answer. (2 marks)

en
(ii) Determine the optimal solution for TMA Company. (2 marks)

ak
(iii) Determine the slack or surplus value for each constraint. State which one is a slack and which one is a

me
surplus. (4 marks)
So
(iv) Determine the shadow price for each constraint. (2 marks)
(Total: 20 marks)

QUESTION THREE
(a) (i) Explain the term “Markov analysis”. (2 marks)

(ii) Highlight four assumptions of Markov analysis. (4 marks)

(b) Differentiate between the following sets of terms as used in hypothesis testing:

(i) “Null hypothesis” and “alternative hypothesis”. (2 marks)

(ii) “Parameter” and “statistic”. (2 marks)

(c) The following payoff matrix shows the potential profits in millions of shillings which are expected to arise from
launching four products S1, S2, S3 and S4 for each level of demand; low, moderate or high.

Payoff matrix
Demand
Product Low Moderate High
S1 15 22 29
S2 22 24 28
S3 32 23 34
S4 35 22 33

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 Required:
Assuming that the products are mutually exclusive, evaluate the optimal decision using:

(i) Maximax criterion. (3 marks)

(ii) Maximin criterion. (3 marks)

(iii) Minimax regret criterion. (4 marks)

(Total: 20 marks)

QUESTION FOUR
(a) A proposal to teach longer hours on weekdays rather than have weekend classes was put forward by a subject
lecturer to his students.

The following results were obtained:

Opinion
Students gender In favour Opposed Undecided
Male 40 10 15
Female 20 30 20

Required:
Calculate the probability that a student selected at random will be:

(i) Female and in favour of the proposal. (2 marks)

om
(ii) Either male or opposed to the proposal. (2 marks)

.c
(iii) Undecided given that the student is female. (2 marks)

ya
(b) The Production Manager of AMIK Company has provided the following information relating to the number of units

en
produced per day in the last 172 days:

ak
Production per day (units) Frequency in days

me
230 – 260 12
So
260 – 290 18
290 – 320 25
320 – 350 52
350 – 380 35
380 – 410 15
410 – 440 9
440 – 470 6

Required:
(i) The modal production. (2 marks)

(ii) The median production. (2 marks)

(iii) The quartile deviation of the production. (6 marks)

(c) A curve is defined by the quadratic function

y = x2 – 15x + 54

Required:
(i) Determine the roots of the equation using the factorisation method. (2 marks)

(ii) By using differentiation, determine the coordinates of the turning point of the curve. (2 marks)
(Total: 20 marks)

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QUESTION FIVE
(a) ABC Ltd. has introduced a new product branded “Nilan”. The Production Manager wishes to establish the
relationship between the total cost of production and the number of units produced. The Production Manager also
believes that the relationship between the total cost of producing “Nilan” and the number of units produced is linear
in nature.

The Production Manager has gathered the following data on the production for the last 8 months:

Month Units produced “000” Total cost of production Sh.“000”

December 2021 675 6,900
January 2022 630 6,480
February 2022 825 6,990
March 2022 645 7,200
April 2022 900 8,560
May 2022 600 6,720
June 2022 510 6,300
July 2022 550 5,250

Required:
(i) Estimate the total cost function using the ordinary least squares method. (7 marks)

(ii) The coefficient of determination between the number of units produced and the total cost of production.
(2 marks)

(iii) Interpret your answer in (a) (ii) above. (1 mark)

(b) A survey of 850 residents of a certain town aimed at finding out the brand of vehicles owned, produced the following

om
results:

.c
316 residents owned Nissan vehicles.

ya
160 residents owned Honda vehicles.
360 residents owned Toyota vehicles.

en
120 residents owned both Nissan and Toyota vehicles.
56 residents owned both Nissan and Honda vehicles.

ak
80 residents owned both Honda and Toyota vehicles.

me
240 residents did not own any of the three brands of vehicles. So
Required:
(i) Present the above information in the form of a Venn diagram. (5 marks)

(ii) The number of residents who own all the three brands of vehicles. (3 marks)

(iii) The number of residents who own just one of the three brands of vehicles. (2 marks)
(Total: 20 marks)

QUESTION SIX
(a) Outline four qualities of a good average. (4 marks)

(b) The weights of 1,000 items are normally distributed with a mean weight of 200 kgs and a standard deviation of
22 kgs.
Required:
(i) Determine the number of items that have weights between 210 kgs and 220 kgs. (2 marks)

(ii) Determine the number of items that have weights between 180 kgs and 230 kgs. (2 marks)

(iii) Calculate the weight below which 20% of the items fall. (2 marks)

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(c) The data below shows the probability distribution of profits earned by firms in the manufacturing industry:
Profit Sh.“million” Probability
10 – 20 0.05
20 – 30 0.05
30 – 40 0.10
40 – 50 0.15
50 – 60 0.30
60 – 70 0.10
70 – 80 0.20
80 – 90 0.05
Required:
(i) The expected profit. (4 marks)
(ii) The expected standard deviation. (4 marks)
(iii) The coefficient of variation. (2 marks)
(Total: 20 marks)
QUESTION SEVEN
(a) A technician at Light Industries Ltd. has established that the probability of a production process producing defective
output is 0.2. A total of 60 units are produced from the process in a certain production period.
Required:
(i) The probability that exactly 10 of the units will be defective assuming a poisson distribution. (3 marks)
(ii) The probability that exactly 10 of the units will be defective assuming a binomial distribution. (2 marks)
(iii) The expected number and standard deviation of units expected to be defective assuming a binomial
distribution. (2 marks)

om
(b) XYZ Ltd. produces and sells a product branded “Xedo”. The product is produced in two departments; manufacturing

.c
and assembly.

ya
The marginal revenue (MR) of XYZ Ltd. is given by the function

en
MR = 600 – 0.12q
Where q is the number of units produced and sold.

ak
The total variable cost (VC) for the two departments is given as follows:

me
Manufacturing department
VC = 60q + 0.06q2
So
Assembly department
VC = 12q + 0.03q2
The total fixed cost for each of the departments is as follows:
Sh.
Manufacturing department 40,000
Assembly department 120,000
Required:
(i) The total revenue, total cost and profit functions of XYZ Ltd. (6 marks)
(ii) The profit maximising level of output. (2 marks)
(iii) The maximum profit of XYZ Ltd. (1 mark)

(c) Given that A = 2 –1 2 and

1 0 3
3 –2 –5
B = 3 –6 –3
7 –14 –7
–1 2 1
Show that AB≠ 0 (4 marks)
(Total: 20 marks)
.............................................................................................................
CA15 & CF15 Page 5
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