Question

The weekly amount of money spent on maintenance and repairs by a company was observed, over a long period of time, to be approximately normally distributed with mean $440 and standard deviation $20. How much should be budgeted for weekly repairs and maintenance so that the probability the budgeted amount will be exceeded in a given week is only 0.1

Answer 1

Answer:

$465.6 should be budgeted.

Step-by-step explanation:

Normal Probability Distribution

Problems of normal distributions can be solved using the z-score formula.

In a set with mean $\mu$ and standard deviation $\sigma$, the z-score of a measure X is given by:

$Z = \frac{X - \mu}{\sigma}$

The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the p-value, we get the probability that the value of the measure is greater than X.

Normally distributed with mean $440 and standard deviation $20.

This means that $\mu = 440, \sigma = 20$

How much should be budgeted for weekly repairs and maintenance so that the probability the budgeted amount will be exceeded in a given week is only 0.1?

The 100 - 10 = 90th percentile should be budgeted, which is X when Z has a p-value of 0.9, so X when Z = 1.28. Then

$Z = \frac{X - \mu}{\sigma}$

$1.28 = \frac{X - 440}{20}$

$X - 440 = 1.28*20$

$X = 465.6$

$465.6 should be budgeted.