Question

While reviewing the sample of audit fees, a senior accountant for the firm notes that the fee charged by the firm’s accountants depends on the complexity of the return.  A comparison of actual charges therefore might not provide the information needed to set next year’s fees.  To better understand the fee structure, the senior accountant requested a new sample that measures the time the accountants spent on the audit.  Last year, the average hours charged per client audit was 3.25 hours.  A new sample of 10 audit times shows the following times in hours:

4.2, 3.7, 4.8, 2.9, 3.1, 4.5, 4.2, 4.1, 5.0, 3.4

a. Perform a 6 step hypothesis test to test the claim that the mean of the audit times has increased.  Be sure and show all 6 steps: 1. Define clearly Ho and Ha, 2. Draw and shade and find and label the critical values, 3. Find the test statistic, 4. Find the pvalue, 5. Reject or FTR Ho, 6. Provide a full conclusion in the language of the problem and remember to include the pvalue.  Use alpha = .01. Remember with alpha = .01, you are still going to put alpha/2 = .005 in each tail and find the critical value.  This is thinking problem … draw and shade step 2 for aid.

b. Construct and interpret a 99% confidence interval for the mean audit time.

c. Was 3.25 included in the interval?

Answer 1