‘Applications of Mathematics in Business’

A Term Paper on the topic:

APPLICATIONS OF
MATHEMATICS IN BUSINESS

Gursimar Kaur
B.COM HONOURS- 2ND YEAR
ROLL NO. 2089
HANSRAJ COLLEGE, DELHI UNIVERSITY
Under the guidance of
Dr. Meghna Malhotra
Submitted on 17th April, 2020.

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 ‘Applications of Mathematics in Business’

TABLE OF CONTENTS
Particulars Page No.

I. ACKNOWLEDGEMENT 3
II. ABSTRACT 3
III. INTRODUCTION 4
IV. USAGE AND IMPORTANCE OF
BUSINESS IN MATHEMATICS 5
V. APPLICATIONS OF BUSINESS IN
MATHEMATICS 7
VI. CONCLUSION 11
VII. BIBLIOGRAPHY 11

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 ‘Applications of Mathematics in Business’

I. ACKNOWLEDGEMENT

The satisfaction and joy that accompany the successful completion of this term
paper would be incomplete without the mention of people who made it
possible. I would like to take this opportunity to express my heartfelt gratitude
towards my teacher and mentor, Dr. Meghna Malhotra. I am greatly indebted
to her for her valuable guidance at all stages of the study of this subject, her
constant advice, constructive suggestions, positive and supportive attitude and
continuous motivation without which it would not have been possible to
complete this project.
In the course of the preparation of this paper, I have used the Internet to
understand and elucidate on this topic better. To all friends who in one way or
another provided support, I express my sincere gratitude.

II. ABSTRACT
No matter what an individual’s career is, Business Mathematics, as a paper gives
indispensable real-world knowledge to help and assist in the various dynamic
aspects of that career. Business mathematics seeks to solve economic
problems by means of methods and concepts provided in the sphere of
mathematical science. It is clear to everyone that bankers crunch
numbers on a daily basis. However, one also comes upon mathematics
everywhere where the future developments and trends are to be determined.
Business mathematics is all about how the problems from the realm of business
and technology can be translated into the language of mathematics and then be
solved by means of mathematical models. Quite often this involves more
than one mathematical model - what makes the matter even more
exciting.
This paper aims to discuss the scope of Business Mathematics as a
subject for the students pursuing B.Com (Honours) and to further explore its
applications in the real world. It also explores the importance, usage and need
for Mathematics in the field of Business and Commerce.

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III. BUSINESS MATHEMATICS- AN INTRODUCTION

Business math is a type of mathematics course that is meant to teach people
about money and provide them with the tools they need to make informed
financial decisions. Business math not only teaches about the specifics of
finances related to owning and operating a business but also offers helpful
advice and information related to personal finance. These classes prepare any
consumer to manage their finances responsibly and profitably by explaining
everything they need to know about accounting, economics, marketing,
financial analysis, and more. Business math will help to make the ins and outs of
money and commerce make sense, even to the most math-averse individuals,
using relevant and authentic applications.
In Academia, “Business Mathematics” includes mathematics courses taken at an
undergraduate level by business students. These courses are slightly less difficult
and do not always go into the same depth as other mathematics courses for
people majoring in mathematics or science fields. The two most common
mathematics courses taken in this form are Business Calculus and
Business Statistics. Examples used for the problems in these courses are usually
real-life problems in the business world.

“An example of the differences in coursework from a business mathematics

course and a regular mathematics course can be calculus. In a regular calculus
course, students would study trigonometric functions. Business Calculus,
however doesn’t study these functions as these are mostly redundant to
business and commercial organisations.”

The subjects typically covered in business mathematics curriculum include:

 Matrix algebra
 Linear programming
 Probability theory.
Another meaning of business mathematics, sometimes called
commercial math or consumer math, is a group of practical subjects
used in commerce and everyday life. In schools, these subjects are
often taught to students who are not planning a university education. In
undergrad or graduate business math course might include a review of
elementary arithmetic, including fractions, decimals, and percentages.

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Elementary algebra is often included as well, in the context of solving practical

business problems.

Thus, Business Mathematics is an immensely dynamic course and is likely to

evolve and change with changing needs of the business world.

IV. USAGE AND IMPORTANCE OF BUSINESS IN

MATHEMATICS
Bankers, accountants, and tax consultants all need to become well-acquainted
with every aspect of corporate and personal finance in order to deliver
appropriate advice and problem solve with customers. Real estate and property
professionals also employ business mathematics often when calculating their
commission, navigating the mortgage process, and managing taxes and fees
upon closing a deal.

When it comes to professions that deal more with capital allocation,

such as investment consulting and stockbroking, understanding investment
growths and losses and making long-term financial predictions is a fundamental
part of the daily job. Without business math, none of these jobs could function.
For those that do own a business, business math is even more important.
Business math can help these individuals to be successful by providing them with
a solid understanding of how to manage goods and services to make a profit. It
teaches them how to juggle discounts, mark-ups, overhead, profits, inventory
management, payroll, revenue, and all of the other complexities of running a
business so that their career and finances can flourish.

“Decision making is an important component of business success.”

Decision based on foundation and knowledge and sound reasoning can lead
to long term prosperity. Mathematics in the business world has a great role
in decision making as decisions taken my managers are typically based on the
Research done which includes quantitative technique. Quantitative approach
is basically use of analytical and numeric techniques that bring factual data
which makes it easier to compare real time scenarios and helps in studying

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the market. Quantitative techniques are used by every manager at every level
but level of usage increases when we focus from first line to top line management
as the top line management needs to solve more complex problems and for which
they need number to get a good idea about the market. Quantitative
approach basically focuses on improving managerial decision making by
applying:
 Statistics
 Optimization Models
 Information Models

A. Quantitative approach is divided into three branches:

 Management Science
(Focuses on development of mathematical models)
 Operation Management
(Focuses on helping organization to produce output more efficiently)
 Management operation system
(Focuses on helping manager to design information system that provides information
about events)

B. Application of quantitative approach:

 Resource allocation
Process of assigning and scheduling available resources in most effective and
economical way, this is based on early estimation of project size, completion
time which is done through quantitative approach.

 Inventory management
Inventory management involves keeping track of a
It involves keeping track of a company’s stocked good. Effective inventory
management. It is necessary for ensuring a business has enough stock on hand to
meet customer demand. Estimation of upcoming demand and supply which is
essential for inventory management is done through quantitative technique.

 Quality Management
Quality management is used to ensure that an organization’s product or service is
consistent, it is not only focused on quality of product but is also focused on
method to achieve it. Estimation of production days, number of workers required is
done through quantitative approach.

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Advantages of quantitative techniques:

 Adds accuracy, precision and factual data.

 Tends to be thorough and analytical.
 Models make it easier to consider alternatives.
 Provides a framework for analysis and discussion.
 Decreases the amount of decisions taken on intuition.

Disadvantage of quantitative technique

 Sometimes difficult to apply in real world.
 Concentrates only on factual data which is available.
 Models are based on assumption.
 Instant decision cannot be taken through quantitative approach as
quantitative technique is based on collection of data.

A major strength of the application of Mathematics in Business is the depth to

which explorations are conducted and descriptions are written, usually resulting in
sufficient details of the reader to grasp the even the smaller details of the situation.

V. APPLICATIONS OF BUSINESS MATHEMATICS

Business mathematics may be defined by different mathematical
formulas or mathematical steps which are taken for development in
business. A large number of business theories which are used to solve
business problems are included in business mathematics. From this simple
definition, we find that business mathematics is about different formulas and
theories like interest rate, annuity rate, matrix theory, linear
programming theory and probability theory and many m o r e. With
these formulas and theories, businesses can come to the solutions of various
business problems. Business mathematics is mathematics used by
commercial enterprises to record and manage business operations.
Commercial organisations use mathematics in accounting, inventory
management, marketing, sales forecasting, and financial analysis.
Mathematics typically used in commerce includes Elementary Arithmetic,

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Elementary Algebra, Statistics and Probability. Business management can be

done more effectively by the use of more advanced mathematics such as
Calculus, Matrix Algebra and Linear Programming; as incorporated by the
University of Delhi in their Business Mathematics paper.

Some applications of mathematics in business and commerce are listed

below:
1. Algebra: Mathematical principles are needed to study accounting. It
incorporates successful exploration of numerical, geometrical and
logical relationships. Mathematics benefits accountant in comparison-
mathematical formulas help business and commerce to compare
income, cost, expenses and profits. The various formulas are derived
using various percentage, ratios and equations. The various ratios are
derived such as: inventory turnover ratios, profitability ratios, debtor
turnover ratio, debt-equity ratio etc.
Mathematics is helpful in deriving accounting
equation. The basic idea in accounting is that total wealth of business
is called Assets. There are two possible claims on assets(A) called
liabilities(L) and capital(C). By using mathematical relation A=L+C,
accountants use mathematics in order to arrive the total cost and
taking decision regarding manufacturing or buying the product. The
total cost formula for business is T=; where ‘T’ is total cost, ‘a’ is fixed
cost, ‘b’ is cost per unit produced and ‘x’ is no. of units produced. Also
profits are determined by subtracting total cost from total revenue and
helps in analysing the financial health of business and prices are
determined by adding some mark-up to cost. So accountant used
addition and percentage to determine the prices of product.

2. OPERATIONAL RESEARCH (OR): OR is concerned with determining the

maximum (profit, performance, yields) or minimum (loss, cost, risk) of
some real world objectives. OR includes game theory, linear
programming formulation techniques, PERT, CPM, transportation
problems. Linear programming also called linear optimization is a
method to achieve the best outcome (as maximum profit or lowest
cost or ensuring best use of available resources) in a mathematical
model whose requirements are represented by linear relationship.
Some of industries that use LP model include transportation, energy,
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telecommunication and manufacturing. Linear function to be

maximized by mathematical function.

3. STATISTICS AND PROBABILITY: Statistics is very indispensable for the

businessman. It formulates various plans and policies and forecasts
trends of future such as change in demand, market fluctuations using
statistical techniques. On the other hand, future events are uncertain
and to predict these uncertainties, probability is an effective tool to
forecast sales, scenario, future returns and risk evaluation in the
business world. Before introducing the product, team of market
research analyse data relating to population, income of consumer,
tastes, preferences, habits, pricing policy of competitors by using
various statistical techniques. We can collect and analysis the data in
the field of economy by using statistical methods. Probability theory
serves as a useful tool for decision making, estimating number of
defective units, sales expected and also in business policies. In
nutshell, statistics and probability are very useful in taking various
decisions relating to material, production, finance, personnel and
marketing in an Industry.

4. CALCULUS: It is another branch of mathematics made up of two fields-

differential calculus and integral calculus. Differential calculus plays
valuable role in management and business for decision making in
production (e.g. supply of raw material, wage rates and taxes). In
calculus, the case when y is a function of x or we can say one variable(y)
is dependent on other variable(x) and the derivative of ‘y’ w.r.t. ‘x’ i.e.
dy/dx measures the change of variable ‘y’ w.r.t. change in variable ‘x’.
Derivative enables a firm to make important production
decisions. It is also called marginal function. Demand can be assumed
as a function of price. This operator is also helpful in calculating
minimum cost and maximum profit. Also total cost of production and
marketing depends on no. of units in mathematical relations, which
can be described as c(x) = F + v(x), where c(x) is cost function v(x) is
variable cost and F is fixed cost. Revenue function R(x) can be
represented as R(x) = xp(x), where ‘x’ is no. of units and ‘p’ is rate per
unit. Hence knowledge of derivative is essential for understanding the
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economic relations. Another integral operator is used to calculate the

total revenue in case of marginal revenue is given. So calculus plays a
vital role in taxes, profit and revenue calculations which are very
important for any business.

5. MATRIX AND LINEAR ALGEBRA: Matrices play prominent role in

developing a solution required for commercial organizations. It has
knowledge to deal with unique needs of various sectors of Industry. It
gives opportunities to finance and logistics management and customer
relationship by providing them a variety of solutions. Also product
price matrices are helpful to set bulk purchase discount. Determinants
and Cramer rule are helpful in problem solving related to business and
economy. It enables oneself in obtaining and optimal solution to
maximize profit or minimize cost problems. Linear algebra serves a
purpose of powerful tool for its application in business. As total cost,
revenue, supply, demand and population are all related with a system
of linear equations. Leontief (1987) derived a production equation in
input-output analysis and got Noble prize for his contribution. The
model given by him was X=CX+d, where x is the production factor, c is
consumption matrix and d is demand vector. If matrix I-C is invertible
then appropriate production for a given final demand can be
computed directly via X=(I-C)-1 d. This basic input- output analysis
however is a very powerful tool (Miller & Blair, 2009). It can Predict
what happens to an economy when final demand changes. By
changing the consumption matrix this can represent what happens to
an economy when the relative cost in terms of other goods (a change
in one or more entries in internal demand) of producing one good can
change both internal and final demand economy.

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VI. CONCLUSION
Thus, it is evident that mathematical methods and tools become crucial part of
the business organization. Application of mathematics becomes necessary from
the beginning i.e. from buying or estimating the cost of product to the end sales
and earning profits. Mathematical formulae help business to do financial
analysis using ratios, percentages, equations. The objective of minimizing cost &
maximizing profit is achieved through linear programming and calculus. The
estimation of future returns & profitability is done through probability
distributions. It also helps in sale forecasting & risk evaluation. Matrices play
important role in variety of solutions for consumer relationships and logistics
management. Statistics helps in collection, presentation and analysis of data to
arrive at conclusions. Statisticians have developed many tools for application
and which can be utilized for business improvement. Statistical Thinking and
Methods need to become part of the knowledge base of an organization. Well
planned systems and training are necessary for implementation. Enhancement
of university education is also necessary. In the light of above, we conclude that
knowledge of mathematics should be made compulsory for students of
Commerce and Management as it plays a key role in any business.

VII. BIBLIOGRAPHY
 https://www.scribd.com/document/390887548/Essential-of-
Mathematics-in-Business-World
 data.conferenceworld.in
 https://www.thoughtco.com/business-math-overview-2312101
 https://www.scribd.com/doc/304980734/Term-Paper-Business-
Mathematics.

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