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Business Analysis Problem: Required Sample Size

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A partner company to American Intellectual Union (AIU), Universal Credit Inc., would like to examine the required sample size needed to be able to estimate the mean dollars that each card holder will spend each month. It would like to be within plus or minus $10 of the true mean with a 98% confidence level. The standard deviation is thought to be $500. How many card holders should be sampled?

After you've determined how many card holders should be sampled, Universal Credit Inc. comes back and says that it will cost $5 per sample, and they were only planning on spending $10,000 on the sample.

In a 1-page memo to the Universal Credit product development team, indicate how many card holders should be sampled to meet the original requirements of the sample. Then explain the trade-offs that will occur when you lower the sample to $10,000 to meet their budget.

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** Please see the attached document for the complete solution response **

26 February 2011
The Director
Universal Credit Product Development Team
SIR:
In connection with the instruction we receive from your good office that we need to determine the sample size in order to estimate the mean dollars that a cardholder will spend in a month, please allow us to give our insights on the issue as indicated below:
1. Determining the sample size is not the first step in drawing the sample. It comes after the ...

Solution provided by:
Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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