A health insurer uses a computer application to monitor physician bill amounts for various surgical procedures. This program allows the organization to better control reimbursement rates. The X-bar chart below is an exa mple of the output from this application. . Select the interpretation that best explains the data plotted on the chart.
A. Random variation.
B. Abnormal variation.
C. Normal variation.
D. Cyclic variation.
ANSWER (B) is correct.
REQUIRED: The interpretation that best explains the data plotted on the chart.
DISCUSSION: Statistical quality control charts are graphic aids for monitoring the status of any process subject to random variations. The X-bar chart presented here depicts the sample means for a variable. If the values fall within the upper and lower control limits, no action is taken. Accordingly, values outside these limits are abnormal and should be investigated for possible corrective action.
Answer (A) is incorrect. Random variations should fall within realistically determined control limits.
Answer (C) is incorrect. Normal variations should fall within realistically determined control limits.
Answer (D) is incorrect. In time series analysis, cyclic variation is the fluctuation in the value of a variable caused by change in the level of general business activity.