Addis Ababa University

College of Business and Economics

Department of Management

Course Title: Mathematics for Management

Course Number: MGMT 2131

Instructor: Robiel H.

06/06/2024
Course Objectives
• The course enables students to have an understanding on:
* Differentiate the various techniques of mathematics that can
be employed in solving business problems.
* Know the way these mathematical techniques are utilized.
* Appreciate the importance of mathematics in solving real
world business problems.
* Use different mathematical techniques for supporting
managerial decisions.

06/06/2024
 Course Description
• Course Description
* This course is designed to expose management students to
the basic concepts and area of managerial application of
mathematics. Topics include: linear equations and their
applications, matrix algebra and its applications, Markov
chain analysis and input output analysis, linear
programming, mathematics of finance, elements and
application of calculus.

06/06/2024
Unit1. LINEAR EQUATIONS & THEIR APPLICATIONS:
* 1.1.Linear Equations, Functions and Graphs
* 1.2.Characteristic of linear equations
* 1.3.Linear Cost Output Relationship, Variable Cost, Fixed Cost,
Total Cost, Average Cost, Marginal cost, Total Revenue, and
Total Profit
* 1.4.Break Even Analysis: Model and Solutions
* 1.5.Market Equilibrium Analysis
* 1.6.Variable Cost, Fixed Cost, Total Cost, Average Cost,
Marginal cost, Total Revenue, and Total Profit
06/06/2024
UNIT 2 - MATRIX ALGEBRA AND ITS APPLICATION
* 2.1.The concepts of matrix
* 2.2. Dimensions and Types of Matrices
* 2.3. Matrix Operations and Techniques
* 2.4. Inverse of a Matrix
* 2.5. Matrix Applications
* 2.6. Systems of Linear Equations
* 2.7 Markov Chains: Concepts, Models and Solutions

06/06/2024
UNIT 3 - INTRODUCTION TO LINEAR PROGRAMMING
* 3.1.Concepts of linear programming
* 3.2. Linear Programming Models
* 3.3.Maximization and minimization problems using graphic
method.
* 3.4.Simplex Approach maximization approach

06/06/2024
UNIT 4 - MATHEMATICS OF FINANCE
* 4.1.Simple Interest and Discount
* 4.2.Simple Interest
* 4.3.Promissory Notes and Bank Discount
* 4.4.Compound Interest, Compound Amount (Maturity
Value), and Present Value (Principal) of Compound Amount
* 4.5.Nominal and Effective Interest Rate
* Ordinary Annuities, Sum of Ordinary Annuity, Sinking Fund
Payments, Present Value of Ordinary Annuity, Amortization,
and Mortgage Payments.
06/06/2024
UNIT 5. ELEMENTS AND APPLICATIONS OF CALCULUS
* 5.1.The concept and rules of differentiation
* 5.2.Discuss derivatives
* 5.3.Business application of differential calculus
* 5.4.Concepts, definite and indefinite integration
* 5.5.Business application of integral calculus

06/06/2024
Assessment
Continuous Assessment* 50%
Final Exam 50%
Total Points 100%

• * There will be a work out exercise given to individuals

and groups and Test.
• Final Exam: Final exam will cover ALL material.

06/06/2024
 Reference:
• TEXT: Bowen Earl K et. Al, Mathematics with applications in Business and Economics,
1987
• Barnett Raymond A. and Ziegler Michael R, Essentials of College Mathematics for
business and Economics, life science and social science, 3rd ed., 1989
• Ann j. Hughes, Applied Mathematics: For Business, Economics, and the social Science,
1983.
• Ronald E. Larson and Bruce H. Edwards, Finite Mathematics with Calculus, 1991
• Ronald J. Harshbager and James J. Reynolds, Mathematics Applications.
• Ronald J. Harshbager and James J. Reynolds, Finite Mathematics, 3rd Ed.
• Hole Poul G., Finite Mathematics and Calculus with Applications to Business, 1974.
• Dexter j Booth and John K Turner, Business mathematics with Statistics, 1996,
• Teresa Bradley and Paul Patton, “Essential Mathematics for Economics and Business’,
Jon Wiley and Sons, December 1999.

06/06/2024
 CHAPTER ONE

LINEAR EQUATIONS
&
THEIR APPLICATION

06/06/2024
 1.1 LINEAR EQUATION
• Algebraic Expression - a mathematical statement
indicating that numerical quantities are linked by
mathematical operations.
E.g. x+2, 2x + y
• EQUATION - A mathematical statement that says two
algebraic expressions are equal. E.g. y = 2x + 3
• Linear Equations - are equations with a variable and a
constant with degree one.
• The term (the part separated by +, -, x) signs
• E.g. 2x - 3y = 7
• Degree 1
• Constant 7
06/06/2024
• Terms 2x &3y separated by the minus sign
 • The general notation of a linear equation is
Y = mx + b
Where,
m = slope
b = y-intercept.

• The line that is parallel to the X- axis is the gentlest of all lines, m= 0
• The line that is parallel to the Y - axis is the steepest of all lines, m =∉

06/06/2024
 • Intercepts - Those points at which the graph of a
line, L, crosses the axes are called intercepts.
• The X-intercept is the point at which the line crosses
the X-axis and it is found at (X, 0) and the Y-
intercept is the point at which the y-axis is crossed.
Its coordinate is at (0, y).

06/06/2024
 DEVELOPING THE EQUATION OF A STRAIGHT LINE

• There are at least three way of developing the equation of a line, these are:
1. The slope - intercept form
2. The slope - point form
3. Two-points form.

06/06/2024
 Linear Equations Applications

TC= VQ+FC
TR = PQ
T = TR – TC
= PQ - (VQ + FC)
= Q (P-V) + FC
Where
Q = units produced

06/06/2024
 BREAK EVEN ANALYSIS
• BEP (Breakeven point) is the point at which there is no loss or
profit to the company.
• It can be expressed either in terms of production quantity or
revenue level depending on how the company states its cost
equation I.e Manufacturing or merchandising Business.

06/06/2024
06/06/2024
 Case 1. Manufacturing Companies

06/06/2024
 Assumptions of Breakeven Analysis
• Selling price is constant throughout the entire relevant range.
• Costs are linear over the relevant range.
• In multi-product companies, the sales mix is constant.
• In manufacturing firms, inventories do not change (Units
produced = Units sold).
• Expenses may be classified in to variable and fixed categories.
• Efficiency and productivity will be unchanged.

06/06/2024
The Effect of Changing One Variable Keeping Others
Constant on BEP
• Case 1: Change in Fixed Cost

• Case 2: Change in Unit Variable Cost

• Case 3- Change in Selling Price

06/06/2024
 A Quantity level that involves profit or loss

06/06/2024
 Case 2 - Retail (Merchandise) Businesses

• Assume a business firm with product A has the following cost

and revenue items.
• Purchase cost of A = 100 Br
• Selling price = 150 Br
• Markup = Selling price - Cost = 150-100=50.

06/06/2024
 Mark up can be expressed:
i. As a function of cost
 The mark-up is
50/100 = 50%
ii. As a function of price /also called margin/
 The mark-up is
50  33.3%
150

06/06/2024
 • Cost of goods sold = 66.67%
• Selling expense = 1 % of selling price
= 0.01x
Total cost equation
Y=0.68x + FC;
Where
X = Sales revenue
Y = Total cost
Out of the 100% selling price, 68% is the variable cost of goods
purchased and sold.
06/06/2024
 • Break-even sales volume level (Xe)
• Total cost = Sales Revenue

Where:
b = fixed cost
m = unit variable cost /Birr of sales, i.e cost of goods sold plus other expenses
06/06/2024
1. Exercise: Suppose a retail business sells its commodities at a margin of
25% on all items purchased and sold. Moreover, the company uses a 5%
commission as selling expense and Birr 12,000 as a fixed cost. Find the
break-even revenue for the retail business after developing the TC
equation.
2. Exercise: It is estimated that sales in the coming will be Birr 6000 and
that fixed cost will be Br 1000 and variable costs Birr 3,600. Develop the
total cost equation, and find the breakeven revenue.
3. Exercise: A company sold 80,000 units earning a profit of Birr 90,000.
The Total purchasing Cost of the product is Birr 400,000. Moreover, the
company incurred a commission expense (additional cost) of Birr 40,000
at 5% rate. (Hint: commission expense is calculated as a percentage of
sales). Develop the total cost equation and find the break-even revenue.
06/06/2024
1. Answer:
Y = 0.8x + 12,000 and Xe = Birr 60,000.
It is interpreted as; when the company receives Birr 60,000 as sales
revenues, there will be no loss or no profit.
2. Answer:
Y = 0.6x + 1000; Xe = Birr 2,500.

3. Answer:
Y = 0.55x + 270,000; Xe = Birr 600,000

06/06/2024
06/06/2024