A large national chain of department stores has two basic inventories. Variation

Question

A large national chain of department stores has two basic inventories. Variation of cash flow for the two types of inventories is under study.
A random sample of n1 = 9 stores with Inventory I had sample standard deviation of daily cash flow s1 = $3,115. Another random sample of
n2 = 11 stores with Inventory II had sample standard deviation of daily cash flow s2 = $2,719. Assume that daily cash flow follows a normal distri-
bution. Test the claim that the population variances of the two inventories are different. Use a 5% level of significance.

A) State the hypothesis

B) Compute the Test value

C) What is the degrees of freedom for this test and the P-value (or the critical values)?

D) Make a decision

E) Answer the question above

Explanation / Answer

A) H0: var I = var II

Ha: Var 1 not equal to var II

Two tailed test for variances

B)F= s12/s22 = 1.3125

C) Degrees of freedom = n1-1, n2-1

= 8,10

D) p value = 0.3369

As p value > 0.05, accept null hypothesis

E) There is no evidence to show that the population variances of the two inventories are different.

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