THE INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA

NOVEMBER 2015 PROFESSIONAL EXAMINATIONS

QUANTITATIVE TOOLS IN BUSINESS (1.4)

EXAMINERS GENERAL COMMENTS

GENERAL PERFORMANCE

The general performance of candidates can be described as below average. Majority of the
candidates who wrote their exams at centers outside Accra and Kumasi performed
extremely poor with a few scoring above 40%. Few high performers recorded are found
in Accra and Kumasi. A couple of candidates scored 0%. There were no traceable copying
by candidates except that those who could not answer the questions decided to copy
the questions, table of formulae, the normal distribution table into their booklets for
marking. Per the scripts submitted for marking this year, one will conclude that candidates
were extremely ill-prepared for the paper and this has reflected in their performance.

STANDARD OF THE PAPER

The paper on quantitative tools in business taken in November, was generally well
written and the standard of the questions were very adequate for the Level One.

In fact, the standard is comparable to the May 2015 paper but a little different from
the previous administered papers. There were little or no ambiguities and typing errors in the
paper. The only identifiable error or misprint was Question Two where in the wording
of the first Sub-Question (i), the word VARIES was used instead of VARIOUS. This
error, however had limited effect on the understanding of the question. In general most
candidates who tackled this question understood the sub-question. I suggest that the
moderator/moderators are given little more time to proof read every paper before they
are packaged for the question bank. The mark allocation was well done. Indeed, every
sub-question had marks duly allocated and the marks were appropriate for each question
( i.e. it followed the weighting in the revised syllabus). Finally, I will like to say that
the questions were evenly spread over the topics in the syllabus. The only limitations
of the paper are inadequate graph plotting related questions and some of the questions
being a bit technical , example Question Three.

STRENGTH OF CANDIDATES

Candidates notable strengths in the performance were on the normal distribution question,
Question Two and Forecasting questions, Question One & Question Three (Time Series
analysis and regression analysis) . Majority could read the normal distribution table easily

Page 1 of 20
and use the calculator very well in the Questions, One & Three. This strengths were
demonstrated mostly by candidates who took their paper in Accra and Kumasi. This
might be due to the availability of teaching and learning materials in these centers, and
qualified instructors for teaching the quantitative tools in business. I suggest ICAG open
teaching centers in every regional capital and also find qualified lecturers to teach at
the centers.

WEAKNESSES OF CANDIDATES

Candidates main weaknesses were; lack of basic knowledge of algebra and inadequate
preparation for the exams. This is reflected in their inability to explain basic terms like
EMV, Expected Value of Perfect Information, Payoff table, Maxima rule, Maximin rule
and many more simple concepts. This weakness is widespread and included candidates from
Accra and Kumasi centers.

Refer to detailed question-by-question analysis of performance below for more on this other
weaknesses:

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 THE INSTITUTE OF CHARTERED ACCOUNTANTS, GHANA

NOVEMBER 2015 PROFESSIONAL EXAMINATIONS

QUANTITATIVE TOOLS IN BUSINESS (1.4)

QUESTION ONE

(a) State the Four (4) Factors which may be present in a Time Series Data.
(4 Marks)
(b) Quarterly Sales of a Golden Tree Chocolate Bar at a Popular Mall in
KoKoLand City are given as follows:

YEAR QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4

1 1260 756 588 1596

2 1352 966 579 2028

3 1786 920 865 2273

Required:

(i) Calculate the trend in the series using a 4-point centered moving average
method. ( 4 Marks)
(ii) Using (i) calculate the Average Seasonal Variation based on the Additive
Model of Time Series analysis (4 Marks)
(iii) Using the values in (ii), determine the Adjusted Average Seasonal Variation
for the Time Series Data. (4 Marks)
(iv) Prepare Seasonal Adjusted Forecast for Year 4 using the Additive Model.
(4 Marks)

(Total=20Marks)

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QUESTION TWO

Jodoo Company Ltd had a new, large order for its product and thinks that this may
herald an expansion of the market, and therefore its sales and profits. The Jodoo Ltd
could move the factory to a new and larger site which would ensure any future
expansion needs were met, and this would cost GHS 1 Million. The existing factory
could be expanded at a cost of GHS 0.25 Million, but this would limit the potential to
meet particularly high increases in future market growth. Finally the new order could be
met by overtime working at a cost of GHS 0.08 Million. Future increases in potential
sales could only be partially met by this method. Consultants suggest that there are three
likely scenarios, a 40 per cent increase in sales, a 10 per cent increase in sales and a
0 per cent increase in sales, with probabilities of 0.2, 0.6 and 0.2 respectively. A new
factory would easily cope with increased sales and the likely extra profit from the 40
per cent sales increase would be GHS 6 Millions, whereas the expanded factory would
have more problems in such a large expansion and would only yield extra profits of
GHS 3.5 Millions, whilst overtime working would be able to make only modest increase
in production, thus restricting extra profit to GHS 1.5 Million. If potential sales grew
by 10 per cent, then a new factory would yield GHS 2.5 Million extra profit, and an
expanded factory GHS 2.5 Million extra profit and overtime working GHS 1.5 Million
Profit. A 0 per cent increase in potential sales would lead to a zero increase in profit
under any of the options.

Required:
(i) Construct a decision tree to represent the varies scenarios of expansion.
(6 Marks)
(ii) Calculate the expected monetary value of each node of your tree in (i).
(8 Marks)
(iii) Advise the company on how to react to this opportunity. (6 Marks)

(Total =20Marks)

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QUESTION THREE

The monthly demand for Maize ( 00s of bags) for the last year in Bosua Market is
as shown below:

Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Demand 42 43 40 44 50 47 53 49 54 57 63 60

Required:

(a) Calculate, the regression line y  a  bx for the Data. (9 Marks)

(b) Using the regression line in (a) above, determine forecast for next year
(i) January, (1 Mark)
(ii) February, (1 Mark)
(iii) March. (1 Marks)

(c) Determine, the Standard Error in forecasting demand in (b) above.

(8 Marks)
(Total=20Marks)

QUESTION FOUR

(a) State the relationships between the mean, median and mode in a
Non-Symmetric Distribution. (5 Marks)

(b) A large departmental store, BOBO, has analyzed the monthly amount spent
by its credit card customers and found that it is normally distributed with
a mean of GHC 100 and a standard deviation of GHC 15.
Required:
Determine, the percentage of people who will spend:
(i) Over GHC 130. (2 Marks)
(ii) Over GHC 120. (2 Marks)
(iii) Below GHC 70. (2 Marks)
(iv) Between GHC 100 and GHC 130. (2 Marks)

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 (v) Between GHC 115 and GHC 130. (2 Marks)

Calculate, the minimum amount spent of:

(vi) The top 10%. (2.5 Marks)

(vii) The top 3% of customers. (2.5 Marks)

(Total = 20 Marks)

QUESTION FIVE

(a) Calculate the sum of the infinite geometric progressions

(i) 3, 0.3, 0.03, 0.003, …, 3  10 ( n 1) (2 Marks)

100, 100 1.01 ,100 1.01 ,100 1.01 ,...,100 1.01

1 2 3  ( n 1)
(ii) (2 Marks)

(b) KuKu invested GHS 2000.00 into a Deluxe Equity Fund.

Required:
(i) Determine, how long it will take the GHS 2000.00 investment to
accumulate GHS 800.00 interest at 10% compounded quarterly,if
the interest is allowed for the fractional part of a conversion
period. ( 1 month= 30 days). (4 Marks)
(ii) Determine, how long it will take the GHS 2000.00 investment to
triple in value, if it doubled in value in 6 years at a certain rate
of interest compounded monthly.( 1 month = 30 days) (4 Marks)
(iii) Determine, the interest rate in b(ii) above. (2 Marks)
(c) Calculate, the accumulated value of GHS 2000.00 for 5 years at 16%
compounded
(i) Quarterly (1 Mark)
(ii) Monthly (1 Mark)
(iii) Annually (1 Mark)
(iv) Semiannually (1 Mark)
(v) Continuously. (2 Marks)

(Total=20Marks)

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QUESTION SIX

(a) Calculate the geometric mean of the following rates of returns for an
Investment on the Ghana Stock Exchange:
0.50 0.30 -0.50 -0.25 (4 Marks)

(b) You have been given the responses of 18 ICAG students to a question
on how much they have spent on textbooks in the last month:
0 0 19.99 32.98 19.99 19.99
48.20 32.98 0 19.99 0 32.98
19.99 0 24.50 0 32.98 100.00

Required:
(i) Compute, the mean, median and mode. Comment on the distribution of
the responses. (8 Marks)
(ii) Compute, the inter-quartile deviation, mean deviation and the standard
deviation. Comment on your results. (8 Marks)
(Total=20 Marks)

QUESTION SEVEN

(a) Explain the following terms in decision making:

(i) Maximax Rule. (1 Mark)
(ii) Maximin Rule. (1 Mark)
(iii) Expected Monetary Value. (1 Mark)
(iv) Payoff table. (1 Mark)
(v) Expected value of perfect information. (1 Mark)

(b) A TV manufacturer finds that he can sell x units per week at a price
p  250  0.5 x each. His cost of production of x TV sets per week is

C  240  x 2 .

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 Required:
(i) Determine, how many sets per week should he produce to maximize
his profit. ( 5 Marks)
(ii) Determine, the maximize profit. (2 Marks)

(c) The price p and quantity x of a product, Kaako are related by the relation:

x  16  4 p  p 2 .
Required:
(i) Determine the elasticity of demand at p  3 . (4 Marks)
(ii) Determine, marginal revenue at p  3 . (4 Marks)
(Total=20Marks)

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SUGGESTED SOLUTIONS

QUESTION ONE

(a) The FOUR main factors are

(i) Trend Factors
(ii) Seasonal Factors
(iii) Cyclical Factors
(iv) Random Factors/ Irregular Factors
(b) (i)

TIME SALES 4-POINT 4-POINT CENTRED SEASONAL

(A) MOVING MOVING MOVING EFFECT
TOTAL AVERAGE AVERAGE(T) ( A-T)
1 1260
2 756 4200 1050.00
3 588 4292 1073.00 1062 -474
4 1596 4502 1125.50 1099 497
5 1352 4495 1123.25 1124 228
6 966 4925 1231.25 1177 -211
7 579 5359 1339.75 1286 -707
8 2028 5513 1328.75 1334 694
9 1786 5599 1399.75 1364 422
10 920 5844 1461.00 1430 -510
11 865
12 2273

(ii)
YEAR QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
1 -474 497
2 228 -211 -707 694
3 422 -510
TOTAL 650 -721 -1181 1191
AVERAGE 325 -360.5 -590.5 595.5

(iii) Total of average values = 325+(-360.5)+(-590.5)+595.5=-30.5

Adjustment factor = 30.5/4=7.625

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 QUARTER AVERAGE ADJUSTMENT ADJUSTED SEASONAL
AVERAGE EFFECT
1 325.00 + 7.625 332.625 333
2 -360.50 +7.625 -352.875 -353
3 -590.50 +7.625 -582.875 -583
4 599.50 +7.625 603.125 603

YEAR QUARTER PERIOD TREND SEASONAL FORECAST

EFFECT
4 1 13 1590 +333 1923
2 14 1645 -353 1292
3 15 1700 -583 1117
4 16 1755 +603 2358

The trend column above was obtain by computing the gradient using the first value
of the centered moving average , 1062 and the last centered moving average ,1430.

1430  1062
Thus the gradient =  52.57 .
10  3

Forecasting from the last centered moving average we evaluate the equation
y  1430  52.57 x , where x  3, 4,5, 6 .

Example trend value of first quarter of year 4 is given by

y  1430  52.57(3)  1587.71  1590

EXAMINER’S COMMENT

It was the most popular question among candidates and many candidates who answered it
scored high marks with one person scoring 20/20. However, only a handful of candidates could
answer correctly sub-question (iv) and those who tried to answer it used a very long procedure
of least square regression. Given the mark allocated for this sub-question, it was a waste of
their limited time. Please refer to the marking scheme for the best approach to answer it.

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QUESTION TWO

Page 11 of 20
(ii)

EMV(Move)= 0.2  6  0.6  2.5  0.2  0  2.7 M

EMV(Expand)= 0.2  3.5  0.6  2.5  0.2  0  2.2 M

EMV(Work)= 0.2 1.5  0.6 1.5  0.2  0  1.2 M

(iii)

EXPANSION EMV COST PROFIT

MOVED FACT. 2.7M 1M 1.7 M
EXPAND FACT. 2.2M 0.25M 1.95M
WORK 1.2M 0.08M 1.12M
OVERTIME

The best reaction to this opportunity is form the company to expand factory and they
would earn profit of GHC 1.95 M.

EXAMINER’S COMMENT

This question was the least answered question by candidates, and those who answered it could
not even draw the decision tree for 6 marks. Candidates who were able to draw the tree could
not calculated the profit, and so could not answer sub-question (iii). Standard of candidates’
understanding of the English Language might be the reason for the unpopular nature of this
question.

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QUESTION THREE

(a) ,(b) and (c) ye  37.69  1.92 x

MONTH DEMAND xy x2 y  ye ( y  ye )2
(x) (y) ye
1 42 42 1 2.39 5.71
39.6
1
2 43 86 4 1.47 2.16
41.5
3
3 40 120 9 -3.45 11.90
43.4
5
4 44 176 16 -1.37 1.88
45.3
7
5 50 250 25 2.71 7.34
47.2
9
6 47 282 36 -2.21 4.88
49.2
1
7 53 371 49 1.87 3.49
51.1
3
8 49 392 64 -4.05 16.40
53.0
5
9 54 486 81 -0.97 0.94
54.9
7
10 57 570 100 0.13 0.07
56.8
7
11 63 693 121 4.19 17.56
58.8
1
12 60 720 144 -0.73 0.53
60.7
3
 x  78  y  602  xy  4188  x 2
 650 (y  y ) e
2
 72.86

12  4188  (78)(602) 50256  46956

b   1.92
12  650  (78) 2 7800  6084

Page 13 of 20
 602  78 
a  (1.92)    37.69
12  12 

(b)
(i) y  37.67  1.92(13)  62.63
(ii) y  37.67  1.92(14)  64.55
(iii) y  37.67  1.92(15)  66.47
72.86
(c) Standard Error=  7.286  2.699
12  2

EXAMINER’S COMMENT

Question Three was the second most popular question among candidates after Question One. However,
few candidates could manage 15 marks and above. Some could not code the months serially as
1,2,3,…, 12 and so did not know how to carry out the regression analysis. Moreover, those
candidates who could code were not able to answer sub-section (c) , which was meant to test
them on how to assess estimates from the regression line.

QUESTION FOUR

(a) Positively Skewed: mode  median  mean

Negatively Skewed: mode  median  mean

(b) Let X be amount spent on credit cards. Then X N (100, 225)

 X  100 130  100 
(i) P  X  130   P     P  Z  2
 15 15 
= 0.5  P  0  Z  2 
 0.5  0.4772
=0.0228

2.3% of the people spent over GHC 130.00

 X  100 120  100 

(ii) P  X  120   P   
 15 15 
= P  Z  1.33  0.5  0.4082  0.0918

9.2% of the people spent over GHC 120

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  X  100 70  100 
(iii) P( X  70)  P   
 15 15 

= P  Z  2 

= 0.5  0.4772

 0.023

2.3% of the people spent below GHC 70

 X  100 130  100 

(iv) P 100  X  130   P  0   
 15 15 

= P  0  Z  2

= 0.4772

47.7% of the people spent between GHC 100 and GHC 130

 115  100 X  100 130  100 

(v) P 115  X  130   P    
 15 15 15 

= P 1  Z  2 

= 0.4772  0.3413

=0.1359

13.6% of the people spent between GHC 115 and GHC 130.

(vi) P  X  k   0.1

P  Z  t   0.1

t  1.28

k  100
 1.28
15

k  100 1.28 15  119.2

(vii) P  X  k   0.03

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  X  100 k  100 
P    0.03
 15 15 

t  1.88

k  100
 1.88
15

k  100  1.88 15

=128.2

EXAMINER’S COMMENT

Candidates who answered this question did extremely well. In fact, they could easily read from the
normal distribution table probabilities, hence questions (b) (I)-(vii) were well-answered. However,
some candidates could not do the inverse reading of probabilities from the normal distribution
table.

QUESTION FIVE

(a)
(i) 3, 0.3, 0.03, 0.003,...,3 10 ( n 1)
3 10
Sum to Infinity S  3  3.33
1 9
1
10
100 1.01
(ii) S  100   10100
1 0.01
1
1.01

(b)
(i) Let n represent the number of quarter- years
n
 0.1 
2800  2000 1  
 4 
1.025
n
 1.4

Page 16 of 20
 log(1.4)
n  13.62643323
log(1.025)
n  3 years 4 months 26 days.
(ii) Let i be the interest rate . Then
2  2000  2000 1  i 
612

1  i 
72
2
1
(1  i )  2 72

Therefore, the time to triple is given by

n
 1
3  2000  2000  2 72 
 

n log 3

72 log 2

log 3
n  72  = 114.1173001
log 2

n  9 years 6 months 4 days

1
(iii) i  2  1  1.0096  1  0.0096
72

Therefore, the interest rate is 0.96 percent.

(c) Let A represent the accumulated amount .

45
 0.16 
 2000 1.04   4382.25
20
(i) A  2000 1  
 4 
125
 0.16 
(ii) A  2000 1    4427.614
 12 
A  2000 1  0.16 
15
(iii)  4200.68
25
 0.16 
(iv) A  2000 1    4317.85
 2 
(v) A  2000e(0.165)  4451.08

Page 17 of 20
EXAMINER’S COMMENT

This question was also unpopular among candidates. Candidates were ill-prepared for business
mathematics/ mathematical finance questions. They did not understand the concept of compounding
and progression in finance. Most candidates used the 16% compound interest rate without taking
into account the frequency of compounding in a year.

QUESTION SIX

(a) 1  R   1  R 1  R 1  R 1  R  ,

g
4
1 2 3 4 R1  0.5, R2  0.3, R3  0.5, R4  0.25

Rg  4
1  0.51  0.31  0.51  0.25   1
= 4 1.5 1.3  0.5  0.75  1
=0.9247332-1
=-0.0752
The geometric mean of the rates of returns on the investment is -7.5%.

(b)

x Freq. fx x  22.48  x  22.48

2
fd 2 x  22.48 fu
f
d u
0 6 0 -22.48 505.35 3032.10 22.48 134.9
19.99 5 99.95 -2.49 6.20 2.49 12.45
31.00
24.50 1 24.50 2.02 4.08 4.08 2.02 2.02
32.98 4 131.92 10.50 110.25 441.00 10.50 42.0
48.20 1 48.20 25.72 661.52 661.52 25.72 25.7
100.00 1 100.00 77.52 6009.35 6009.35 77.52 77.5
 18 404.57 10179.1 294.57

404.57
(i) Mean   22.48 , Mode  0 and Median= 19.99
18
As 0<19.99< 22.48 we say the distribution is positively skewed.
294.57
(ii) Mean deviation =  17.33
18  1

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 10179.0
Standard Deviation 
18  1
= 598.77
= 24.46
First quartile = 0
Third quartile=32.98

Inter-quartile Deviation =32.98-0=32.98

These measures of variability are not zero, so we say there exists some
variations in the responses.

EXAMINER’S COMMENT

Question Six was the third most popular question among candidates and most candidates who
attempted this question did extremely well. However, some candidates did not understand the
requirement of the question and as a result they tried to group the data into classes using the
Sturge’s formula. Those who managed to compute the necessary statistics for the data could
not interpret or comment on the figures they have obtained

QUESTION SEVEN

(a)
(i) Maximax Rule
It chooses the “best of the the best” and is a rule favoured by decision-
makers who are risk-seekers.
(ii) Maximin Rule
It chooses the “the best of the worst” and is a rule favoured by decision-
makers who are risk-averse.
(iii) Expected Monetary Value
It is an expected value in monetary terms. It is found by multiplying each
pay off by the probability that this pay off will occur.
(iv) Pay off table
It is simply a table that gives the outcome ( e.g, profits) of a decision under
different conditions or states of nature.
(v) Expected Value of Perfect Information
It is the difference between the expected value with perfect information and
the best EMV.
(b) Demand function : p  250  0.5 x
Cost function: c  240  x 2

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 (i) Profit is given by
 ( x)  px  c  (250  0.5 x) x  (240  x 2 )  250 x  1.5 x 2  240

d
The profit maximizing quantity is given by  250  3 x  0
dx

Therefore we have x  83.33

(ii) Maximum Profit

 (83.33)  250(83.33)  1.5(83.33)2  240  20,832.5  10, 415.83  240  10,176.67

(c) Demand function: x  16  4 p  p 2

dx
(i)  4  2 p
dp
p dx 3 30
Elasticity   =   4  2(3)   6
x dp 16  4(3)  32
5
dR
(ii) Marginal Revenue =
dx
dR dx dp 1
R  p( x) x   p x = p  (16  4 p  p 2 ).
dx dx dx (4  2 p)
Therefore , Marginal Revenue is given by
1 1
MR  3  (16  4(3)  32 ).  3  (5)  3  0.5  3.5 .
(4  2(3)) 10

EXAMINER’S COMMENT

Answers provided by candidates for Question Seven (a) were not understandable . Candidates
could not construct good sentences in English and when they are able to do so, the sentences
constructed deviate greatly from the marking scheme. Candidates could hardly apply some
basic rules of differentiation , which was the main test in question Seven (c) (i)-(ii).

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