University of Dhaka

A Report On
“Application of Business Mathematics in
Business Sector”

Date of Submission: December 09, 2016

Course code: F-502

Course Title: Business Mathematics

Report: Application of Business Mathematics in Business Sector.

Submitted To:

Ms. Farzana Lalarukh

Associate Professor

Department Of Finance

University Of Dhaka

Submitted By:

Sec: B

Department Of Finance

University Of Dhaka

Date of Submission: December 09, 2016

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 Group Profile

Name Id

Mohammad Arman Reza 34003

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ckk 34

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[3]
 Acknowledgement

Our group expresses our gratitude to our honorable course teacher Ms Farzana Lalarukh,
Associate Professor, department of Finance, University of Dhaka, who has given us the
opportunity to work on this report.

We are very much grateful to our honorable course teacher for assigning us such an
important course which is very much beneficial for our later part of life.

We also want to thank all who have helped us in preparing this report and worked hard to
make this report happen.

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 Table of Contents
Title Page no.
Acknowledgement 04
Letter of Transmittal 05
Credit 06
Contents 07
Executive Summary 08
Introduction 09
Literature Review 10-13
What is Break-even analysis? 14
What is Logarithm? 14
What is Compound Interest? 15
Company Profile 16
Key Terms: Break-Even Analysis 17
Break-Even Analysis for “TARA” 17-18
Key Terms: Finding Compound Interest by 19
use of Logarithms
Finding the use of Compound Interest in 19-20
“TARA”
Our Learning From Business 21
Mathematics–1
Conclusion 22
Reference 23

Chapter 1 INTRODUCTION

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 1.1 Introduction

In this digital era of business world application of mathematics become very essential for the survival. It
helps to create comparative advantage among competitor. By applying mathematics in business, the
owner of the business get help for making the present and the future planning. Sometimes it helps them to
take initiatives against facing loss. Mathematics applications in business also help to calculate the future
profit / income easily. Using formula / functions of the mathematics in business, they can save their time,
to calculate depreciation, interest amount, breakeven point and many things.

We had been asked to choose a creative business idea and apply Business Mathematics in that business.
In this report the details of our business idea and several applications of Mathematics have been
described. In Chapter 2, a complete overview of our business idea has been shown. Chapter 3 describes
the literature reviews of those mathematics that have been applied. Chapter 4 labels the application of
Business Mathematics in our business which is the core part of this report and in the last chapter a
conclusion has been drawn.

1.2 Limitations
To make a report on application of Business Mathematics in real life business is not an easy task. It is an
accumulation of both information and creative thinking. It requires a great effort and long sound
planning to make a report. It is true that we got help from many qualified people. But still we faced some
problem. Another limitation was time that was not long enough to make such a report. Due to time
constrains we were not able to apply all of the methods we learnt in our course to our report. Despite all
of those hindrances, we tried our level best to make this report pleasant. At the end we are very happy to
present this report to the readers and its success will depend on the positive response of the readers.

Chapter 2 BUSINESS IDEA

(WATER REFILLING STATION)

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2.1 Introduction

After the introduction of Grading System in Secondary School level, students along with their
parents are hankering after this. The demand of securing A+ is getting increasingly popular among
the students, teachers and of course the parents of the students. Leaking public examination
question paper has added a new dimension in this A+ mania.

2.2 Overview of the Business

A solution to this problem might be the introduction of water refilling stations. We can simply call it
Water Shop where customers can buy pure water. The consumers would bring containers and fill
them for a per-gallon fee that is a small fraction of commercially bottled water’s cost. We can also
offer home delivery for regular customers. The source of the water might be the water from WASA
or we can contract with any water supplier.

2.3 Factors behind the idea

To be conscious about pure drinking water, we need to know about few things that can be the
causes of contaminated water and the ways to make them pure. For this we should know the
following terms.

2.3.1 TDS

Total Dissolved Solids (TDS) are the total amount of mobile charged ions, including minerals, salts
or metals dissolved in a given volume of water, expressed in units of mg per unit volume of water
(mg/L), also referred to as parts per million (ppm). TDS is directly related to the purity of water and
the quality of water purification systems and affects everything that consumes, lives in, or uses
water, whether organic or inorganic, whether for better or for worse.

2.3.2 Reason of measuring the TDS level in our water

The maximum contamination level (MCL) of TDS is 500mg/liter (500 parts per million (ppm)).
Numerous water supplies exceed this level. When TDS levels exceed 1000mg/L it is generally
considered unfit for human consumption. A high level of TDS is an indicator of potential concerns,
and warrants further investigation. Most often, high levels of TDS are caused by the presence of
potassium, chlorides and sodium. These ions have little or no short-term effects, but toxic ions (lead
arsenic, cadmium, nitrate and others) may also be dissolved in the water.
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Even the best water purification systems on the market require monitoring for TDS to ensure the
filters and/or membranes are effectively removing unwanted particles and bacteria from your
water.

2.3.3 Reverse Osmosis System (RO)

A recent research has found that almost all of the companies in our country, who produce
bottled water called mineral water, don’t use Reverse Osmosis system. Reverse osmosis (RO)
is a water purification technology that uses a semipermeable membrane to remove ions, molecules,
and larger particles from drinking water. It is a technique to filter all kinds of solids, metals from
water that the ordinary filtering process cannot filter.

RO can significantly reduce the amount of TDS in our water. So, in our water refilling station, we are
going to use that RO system. It is relevant to mention that this idea of water refilling station is very
popular in many countries all over the world especially in Philippine where thousands of water
refilling stations that now dots the landscape.

2.4 Features of a water refilling station

Structurally, water refilling station can be operated with a minimum area of at least 20-25 square
metres. It comprises the following sections: refilling and selling room, enclosed water purification
room, container washing and sanitizing room, storage room for empty and refilled containers,
source water storage facility, toilet and an office. To operate the water store, about five
employees are needed.
1 – Manager – Overseas store operations at least 4 hours a day
1 – Accountant/Bookkeeper – Makes financial statement of business operations
1 – Administrative assistant – Logs and handles cash sales and purchases
1 – Front Liner – Accepts and refills containers of customers
1 – Technical Asst. – Maintains and runs the machine
1 – Driver/Delivery Man – Transport refilled containers to customer’s home

The main processes in a water refilling station is dictated by raw water quality. The typical
steps are filtration (several stages), softening, and disinfection. The machines that could be installed
for such processes are the following:

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Multi-media sediment filter – removes sediments such as rust, sand and particles that are
invisible to the naked eye; employs a total of 5 filters.

Ion exchanger – replaces hard minerals with soft minerals.

Activated carbon filter – removes all organic chemicals, herbicide, pesticide, offensive odor and
bad taste.

Reverse osmosis membrane – the heart of the system and the most expensive unit; removes
inorganic minerals, bacteria and viruses while retaining its oxygen content. Since the filter size is
very small at less than 0.05 micrometre, the product water could have a total dissolved solids (TDS)
of less than 10 ppm. The filtration process rejects about 50 percent of raw water volume.

Post-carbon filter – improves the taste of water.

Ultraviolet lamp – ensures that the water is free from disease-causing micro-organisms.
Ozone generator – inhibits the growth of bacteria in the product tank and prolongs the shelf life of
water.

2.5 Investment Requirements

2.5.1 Equipments
Qty Description Amount
(Tk)
1 unit Reverse Osmosis System 281911
1 unit Multi-Media Automatic wash with stainless stell 67620
Jacket
1 unit Granular Activated Carbon automatic backwash 67620
1 unit Single Softener with bypass 67620
1 unit Ultra violet 12GPM 220 V/60H2 54096
1 unit Ozone Pure 54257
1 unit Polisher Carbon 7438.2
1 unit 0.20 Micron with housing 5358.885
1 unit Pressure Tank with pump 19440.75
1 unit Storgage tank @P7600 480 gallons 25695.6
1 unit Magnetic Flow meter 7100.1
Subtotal 658157.54

2.5.2 Direct Cost (Monthly)

a) Raw Materials Tk. 3628.779
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 b) Supplies Tk. 33091.54
c) Packaging Tk. 57233.09
Total Direct Cost = Tk. 93953.40

2.5.3 Indirect Cost

Particulars Amount
(Tk)
Labor cost (P330/day min wage x30 days) 15939

Electricity 4057.2

Water 507.15

Contingency (10%discount) 9395.332

Subtotal 29898.68

2.5.4 Pricing and Costing

b) for a 5- gallon refill only

Particulars Amount
(Tk)
Total raw materials & supplies /90 gallons/30 days 13.60

Packaging for a 5 gallon & seal .34

Total 13.94

Add: Total indirect cost/90 gallons/30days 11.07

Total Product cost 25.00

Add: 80% mark-up 20.00

Selling price 45.00

So, the cost of 5 gallons of water is tk. 25 and selling price is tk. 45.

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Chapter 3 LITERATURE REVIEW

3.1 Introduction
The theoretical part of the business methods and functions we have used in our business is going to
be discussed in this chapter.

3.2 Linear Equation and linear function

Linear equations are equations whose terms (the parts separated by plus, minus and equal signs)
are a constant or a constant times one variable to the first power. The general form of a linear
equation is,

y=mx+c

In this segment we are taught the following things:

Characteristics, graphing two-variable equations, Slope-intercept form, Slope and intercept,

Slope and one point, two points formulation, systems of equalities and non-equalities,
solutions of simultaneous equations.

Linear function the relationship between y and x expressed by

y=mx+c

is called a functional relationship because for each value of x, there is one, and only one,
corresponding value for y. The expression states what y is in terms of x, and we connote this by
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saying y is a function of x; of course this is a linear function. Here x is called the independent
variable and y is called the dependent variable.

We are also taught the applications of linear equations, which are Linear equations applications -
linear cost functions, linear revenue functions - linear profit functions, Break-even analysis.

3.3 Break-even analysis

The cost of a particular product is determined by the fixed cost and variable cost per unit. When
profit is added to this cost, we get the selling price. The total profit or loss of a business depends on
the selling price and the amount of products sold. For a certain amount of products sold, there rises
a situation where total profit is equal to total amount of fixed and variable cost, which means, there
occurs a situation where profit = 0.

In a word, break-even point is,

Profit = Revenue – cost

Or, 0 = Revenue –cost

Or, Revenue = cost

Here, revenue = Price (p) * Quantity (q)

And, cost = {Variable Cost (vc) *q } + Fixed Cost (fc)

3.4 Finding Maxima and Minima

Consider the curve y=f(x) a ≤ x ≤ b shown in the following figure.

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By inspection we see that for this curve there is no y−value greater than that at x = a (i.e. f (a)) and
there is no smaller value than that at x = b (i.e. f(b)). However, the points on the curve at x 0 and x1
merit comment. It is clear that in the near neighborhood of x 0all they−values are greater than the
y−value at x0 and, similarly, in the close neighborhood of x1all the y−values are less than the y−value
at x1.
We say f(x) has a global maximum at x = a and a global minimum at x = b but also has a local
minimum at x = x0and a local maximum at x = x1.
Our primary purpose in this block is to see how we might locate the position of the local maxima
and the local minima for a smooth function f(x).

3.4.1 Stationary Point

A stationary point on a curve is one at which the derivative has a zero value. In the following
diagram we have sketched a curve with a maximum and a curve with a minimum.

By drawing tangent lines to these curves in the close neighborhood of the local maximum and the
local minimum it is obvious that at these points the tangent line is parallel to the x−axis so that

3.5 Matrix
A matrix is a rectangular array of numbers. The size or dimension of a matrix is defined by the number of
rows and columns it contains.

3.5.1 Matrix Multiplication

Matrix multiplication or the matrix product is a binary operation that produces a matrix from
two matrices. If A is an n × m matrix and B is an m × p matrix, their matrix product AB is
an n × p matrix, in which the m entries across a row of A are multiplied with the m entries down a
columns of B and summed to produce an entry of AB. When two linear transformations are
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represented by matrices, then the matrix product represents the composition of the two
transformations.

3.5.2 Definition of Matrix multiplication

If A is an n × m matrix and B is an m × p matrix,

the matrix product AB (denoted without multiplication signs or dots) is defined to be

the n × p matrix

where each i, j entry is given by multiplying the entries Aik (across row i of A) by the
entries Bkj (down column j of B), for k = 1, 2, ..., m, and summing the results over k:

Thus the product AB is defined only if the number of columns in A is equal to the number of rows
in B, in this case m. Each entry may be computed one at a time.

Chapter 4 APPLICATIONS

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3.1 Introduction
In this chapter the applications of different business mathematics functions in our business have
been illustrated.

3.2 Application of Minima

3.2.1 Case 1
To kick off the business, at first we need to have a space. We managed to acquire a space of 3000 sq ft
which needs to be arranged. Due to capital shortage, we have decided to use that space as a plant as
well as our office. The space is rectangular in size. We are planning to divide it into 2 rectangular rooms
by an interior wall. One room will be used as a plant and the other as an office room. We have received
a quotation from a supplier that it will cost Tk. 100 for exterior wall and Tk. 90 for interior wall. Now as
an owner of the business, we need to find out the followings:

(i) What dimension will minimize the total wall cost?

(ii) What is the minimum cost?

Solution: y

x xxX x

Total Wall= 2x+ 2y + x

Total Area, xy= 3000

3000
So, x=
y

The cost function of the wall C(w)= 2x. 100 + 2y.100 + x.90

= 200x + 200y +90x

So, C(w) = 290x + 200y

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 3000
Hence, C ( y )  290   200 y
y

  290  3000 y 1  200 y

C ( y )   290  3000  y 2  200

C ( y )   580  3000   y 3

At Stationary Point C ( y )  0

Or,   290  3000  y 2  200  0

Or, 200 y 2   290  3000 

 290  3000
Or, y 
2

200

Or, y 2  4350

 y  65.954

Discarding negative value, we get y  65.954

 C (65.954) 
 580  3000
 65.954 3
1740000

286895.29087

 6.06493 Which is greater than 0.

As C ( y ) is greater than zero, so this is the minimum length.

3000
x 
65.954

=45.486

So, the dimension that will minimize the cost will be (45.486, 65.954)

 290  3000  200  65.954

Minimum Cost C (65.954) 
65.954

= 13191 + 13191

=26382

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3.2.2 Case 2
Our machine is capable of producing 60,000 5 gallons of water in a day and the total daily cost of
producing x 5 gallons of water in a day is given by,

How many 5 gallons of water per day should we produce in order to minimize production costs?

Solution
Here we need to minimize the cost subject to the constraint that x must be in the range

. Note that in this case the cost function is not continuous at the left end point and
so we won’t be able to just plug critical points and endpoints into the cost function to find the
minimum value.

Let’s get the first couple of derivatives of the cost function.

The critical points of the cost function are,

Now, clearly the negative value doesn’t make any sense in this setting and so we have a single
critical point in the range of possible solutions : 50,000.

3.3 Application of Break Even Point

We have a fixed cost of tk 6,58,157 and variable cost of tk 25 per 5 gallons of water.Selling price is tk
45 per 5 gallons.

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a)We have to find out the revenue,cost and profit function.b)What is the profit if 20000 5 gallons
water is sold?c)What is the profit if 35000 5 gallons water are sold?d)Find the break-even
quantity.e)What is the break-even tk volume of sales(revenue)?

Solution:a) We denote the number of 5 gallons of water sold by q,then since water are sold at tk
45 ,the revenue function

R(q)=45q

Now since the variable cost per 5 gallons water is tk 25,the variable cost of making q 5 gallons water
will be 25q.Adding the fixed cost of tk 6,58,157,the cost function becomes

C(q)=25q+658157.

Lastly,since profit is revenue minus cost, the profit function is

P(q)=R(q)-C(q)

=45q-(25q+658157)

=45q-25q-658157

=20q-658157.

The coefficient 20 of q represents the profit per 5 gallons water and is precisely the difference
between the selling price per 5 gallons water of tk 45 and the variable cost per 5 gallons water of tk
25.Similarly the term of 658157indicates that the manufacturer has to produce and sell enough 5
gallons water for the fixed cost of tk 12,00,000 before breaking even.
b)If 20000 5 gallons of water are sold,then the profit is

P(20000)=20(20000)- 658157

= - tk 258157, indicating a loss of tk 258157.

c)On the other hand,if 35000 5 gallons of water are sold,the profit is

P(35000)=20(35000)- 658157

= tk 41843.indicating a profit of tk 41,843.

d)At break-event, profit will be 0.Thus

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 P(q)=0

or, 20q-658157=0

or,20q=658157

or, q =658157/20 =32907 5 gallons of water.

e)Finally,the break-even tk volume of sales (revenue) is

R(32907)= 45*32907=1480815.

3.3 Application of Matrix

Let’s we have served 3 types of water. They are 5 gallons, 10 gallons and 20 gallons. Their selling
prices are tk 45, tk 85 and tk 150 respectively. We also assume that we have 3 shops, shop A, Shop B,
Shop C. The monthly sale of different types of water of a particular month are as follows.
5g 10g 20g
 25000 18000 24000 
 
Q=  20000 26000 22500 
 30000 25500 28000 

We want to calculate which shop earns more revenues.
 45 
 
Solution: Price function P   85 
150 
 

 25000  45  18000  85  24000  150 

 
So, Q  P   20000  45  26000  85  22500  150 
 30000  45  25500  85  28000  150 
 

 1125000  1530000  3600000 

 
  900000  2210000  3375000 
1350000  2167500  4200000 
 

 6255000 
 
  64855000 
 7717500 
 

It can be seen that shop C has made more profit than other two shops.

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Chapter 5 CONCLUSION

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5.1 Learning from the course
Business Mathematics focuses on the mathematical side of business and helps students to
understand and be able to organize and execute the different mathematical aspects of the day to day
activities of a business firm.

Business Mathematics has taught us the relation between the inputs of a business and the output it
generates. We all know now that the relation can be either linear that is directly proportional or it
can be complex.

We also have come to know a very important aspect of business from Business Math that is the
different kinds of interests and depreciations. As business has to take a lot financial aid and also has
to invest in lot of business activities it is of paramount importance for the students of business to be
able conduct these mathematical operations.

Also from Business Math we learn to deal with the growing use of calculus in the field of business.
These differential and integral calculations have made the operating of day to day business a lot
easier. We now can predict and forecast as correctly as we can to run the business effectively and
efficiently.

This subject enables a student to learn and manage the daily business activities from a
mathematical point of view.

5.2 Conclusion
This whole project was really intriguing for every member of our team. Throughout our previous
study life we studied math only based on theory. We never had the chance to know how math was
actually applied in real life. So from this perspective it was a good opportunity for us to take the
process of learning math into a whole new level.

So, if we sum it up, we can come to the conclusion that mathematics plays
important role in business. Business mathematics is used in commercial enterprises to record and
manage business operations. Mathematics typically used in commerce includes elementary
arithmetic, such as fractions, decimals, and percentages, elementary algebra, statistics and
probability. Business management can be made more effective in some cases by use of more
advanced mathematics such as calculus, matrix algebra and linear programming.

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 REFERENCE
 Business Mathematics,
By D.C.Sanchet & V.K.Kapoor
 Mathematics with applications in management and economics,
By Gordon D. Prichet & John C. Saber
 http://en.wikipedia.org/wiki/Business_mathematics
 http://www.scribd.com/doc/12243159/Role-of-Mathematics-in-
Business

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