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CMA Final · Strategic Cost Management · Introduction to Tools for Data Analytics

A Chennai firm's analyst monitors daily order-processing time, which is approximately normally distributed with mean 30 minutes and standard deviation 4 minutes. Using the z-score method, an observation is flagged as an outlier if |z| exceeds 2.5. Which of the following processing times would be flagged?

41 minutes is flagged. With mean 30 and standard deviation 4, its z-score is (41-30)/4 = 2.75, which exceeds the 2.5 threshold. The other values have z-scores of -2, 2 and 0.75, all inside the limit.

  1. A22 minutes
  2. B38 minutes
  3. C41 minutesCorrect
  4. D33 minutes

Explanation

The cut-off is 30 ± 2.5×4 = 30 ± 10, i.e. below 20 or above 40. Only 41 (z = 11/4 = 2.75) lies outside. 22 gives z = -2 and 38 gives z = 2, both inside the limit; 33 gives z = 0.75.

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