Business Mathematics – Unit-2
CHAPTER- 01
“PROFIT AND LOSS”
In today’s business world the aim of every businessman is not only to earn profit but also to enhance
their profit. The purchase of raw material, manufacture the goods and sale the produced items is a
common practice for the producer / manufacturer. Hence, the knowledge of profit-loss is very
essential for every businessman.
A company's profit reveals how much of its earnings get to keep after it pays all of its manufacturing
expenses including direct and indirect expenses. Profit is a ratio of earnings to revenue. Companies
with strong earnings make high profit compared to their counterparts or competitors. When a
company faces a loss than manufacturer cannot expect profit at all because in this case expenses are
more than the revenues.
PROFIT & LOSS
The price at which an item is purchased or the cost of production of an item is called as purchase
price or cost price (C.P.) and the price at which an item is sold is called selling price (S.P.) of the
item. If the cost price of an item is less than the selling price of the item then the item is sold at
‘Profit or Gain’. Profit = S.P. – C.P. (S.P. > C.P.)
Now, if the cost price of an item is more than the selling price of an item then the item is sold at
‘Loss’. Loss = C.P. – S.P. (S.P. < C.P.)
TYPE OF COSTS
All payments made by a manufacturer in the production of a good or service are called the cost of
production. These costs have to be deducted from selling price to earn profit.
1. Direct Cost: - Direct costs are those which have direct relationship with a unit of operation like
manufacturing a product, organizing a process or an activity etc. In other words, direct costs are
those which are directly and definitely identifiable. The nature of the direct costs is related with a
particular product/process, they vary with variations in them. Therefore all direct costs are
variable in nature. Examples: Price of machinery cost of raw material, wages of labor, etc.
2. Indirect Cost: - Indirect costs are those which cannot be easily and definitely identifiable in
relation to a plant, a product, a process or a department. Indirect costs are not directly connected
with the manufacturing or purchasing the items. Indirect costs are both the fixed and the variable
type as they may or may not vary as a result of the proposed changes in the production process
etc. Example: Office rent, advertisement expenses, machinery maintenance charges, etc.
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
Now, when direct costs are subtracted from the selling price of an item, it is called ‘Gross Profit’ and
when indirect costs are subtracted from gross profit then it is called ‘Net Profit’.
Gross Profit = Selling Price – Direct Costs
Net Profit = Gross Profit – Indirect Costs
Profit (%) = Profit / Selling Price *100
Loss (%) = Loss / Selling Price * 100
Numerical Sums……
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
CHAPTER- 02
“DISCOUNT, COMMISION & BROKERAGE”
DISCOUNT
It is very common in ay-to-day business, in order to retain existing customers for long life and to
encourage the potential customers. The difference between the Maximum Retail Price (MRP) and
Selling Price of an item is called ‘discount’.
Discount = MRP – SP
Discount (%) = Discount*100/ Printed Price
TYPES OF DISCOUNT
1. Trade Discount: - A trade discount is the amount by which a manufacturer reduces the retail
price of a product when it sells to a reseller, rather than to the end customer. The reseller then
charges the full retail price to its customers in order to earn a profit on the difference between
the amount by which the manufacturer sold the product to it and the price at which it then
sells the product to the final customer. Example - a retailer order 100 t-shirts from a
manufacturer at a time and receive a 5% trade discount.
2. Commodity Discount: - Sometimes the manufacturer gives some additional items / products
to the buyer in order to generate maximum sales. This is called ‘commodity discount’.
Example - Buy 1 and get 1 free @ Rs. 500.
3. Successive Discount: - In order to attract people to buy the items / products in large number
of units within a certain time period. Sometimes the seller gives some extra discount in
addition to the first discount. In other words, successive discount means discount on the
discount. Example - A dealer offers a table at Rs.1, 500 and gives successive discounts of
20% and 10%.
Suppose Cost Price is Rs. 100 then 20% discount means Selling Price is Rs.80; here seller is
giving another discount of 15%. Therefore the final selling price is 80-(80*15)/100=Rs.68.
4. Cash Discount: - Cash Discount is referred to as a discount allowed to customers
by the seller at the time of making payment of purchases made by them as a
deduction in the invoice price of the commodity. Generally, cash discount is
used by the sellers to increase the rate of timely payment and avoiding the
credit risk. Example - Music CD has price tag of Rs.100 and the shopkeeper is offering 20%
discount. That means 20% less r discount on the price tag.
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
Conclusion
The aim of most of the organization is to ultimately increase the sales revenue and these discounts are
the major tool for it because people usually are habitual of bargaining and that’s why if they are
encouraged through giving discounts then both of them will be benefited through this.
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COMMISION & BROKERAGE
A person employed in buying r selling for another person is called an ‘Agent’. A fee charged by the
agent for his service in facilitating a transaction such as buying and selling the product is called
‘commission’.
A person who works as a mediator between a buyer and a seller is called a ‘Broker’. The amount that
a broker gets for his mediatorship is called ‘brokerage’.
The buyer has to pay the actual cost price plus the brokerage and the seller gets the actual selling
price minus brokerage. The additional amount paid to the agent when the sales exceed the pre-
determined sales target than it is called ‘Bonus’.
Commission = Rate of commission * Amount of sales / 100
Rate of Commission = Amount of Commission * 100 / Amount of Sales
Amount of Sales = Amount of Commission * 100 / Rate of Commission
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Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
CHAPTER- 03
“RATIO, PROPORTION & PERCENTAGE”
1. RATIO
A ratio is a relationship between two numbers of the same kind. Example – objects, persons,
students, units of identical dimensions etc. In other word, a ratio represents – for every amount of one
thing, how much there is of another thing. Ratio can be shown by using “:”.
Example: - If there is one boy and three girls; you could write the ratio as- 1:3 (for every 1 boy there
are 3 girls) or ¼ are boys and ¾ are girls or 0.25 are boys and 0.75 are girls.
Example: - Suppose Tina has 5 Kg mangoes and Mona has 9 meters of curtain cloth. Here, we cannot
compare the two because mangoes and curtain cloths have different units (Kg & Meter). ‘Both the
quantities should have the same units for comparison and ratio.’ Ratio is simplest mathematical tools
that reveal significant relationships in two number/ quantity/ data and allow meaningful comparison.
Major types of business ratios include –
1. Efficiency,
2. Liquidity,
3. Profitability,
4. Solvency Ratio
“Simplest or Lowest Form of Ratio”
Example: - If Rita has 30 Toffees and Tina has 45 toffees than the ratio would be 30:45. Here, we can
observe that both the value have a common factor i.e. 15. So, the simplest form of the ratio would be
2:3.
Example: - Ratio of 6 months to 2 years. Common Error 6 months: 2 years or 3:1. Correct Method 6
months: (2*12 months) = 6:24 or 1:4.
Example: -
A ratio of 1 minute to 1 hour = 1:60.
A ratio of 3m to 200cm = 3:2 (1m=100cm).
A ratio of 3 days to 2 week = 3:14
A ratio of 40 minutes to 1 hour = 40:60 or 2:3.
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
“Continued Ratio”
Three quantities are said to be in continued proportion; if the ratio between the first and the second is
equal to the ratio between the second and the third. Suppose, if we have three qualities such that the
ratio of first to second is equal to the ratio of second to third, we say that the three qualities are in
continued proportion. The middle term is called the mean proportional between the first the third
terms i.e. a, b and c are in continued proportion, if a : b = b : c
The second quantity is called the mean proportional between the first and the third i.e. in a : b = b :
c; b is the mean proportional between a and c. The third quantity is called the third proportional to
the first and the second i.e. in a : b = b : c; c is the third proportional to a and b.
For example: - Let us consider the numbers 6, 12, 24.
Here, the ratio of first quantity to the second = 6 : 12 = 1 : 2
And ratio of second quantity to the third = 12 : 24 = 1 : 2
We see that 6 : 12 = 12 : 24
Thus, 6, 12, 24 are in continued proportion.
Example: - Find, m, if 7, 14, m are in continued proportion.
Solution: x, y and z are in continued proportion x:y = y:z
Let 7, 14, and m be 7 : 14 = 14 : m. Therefore, 7m = 14*14 or 7m = 196 or m = 196/7 Therefore, m =
28.
“Combined Ratio”
We learnt that ratio is the method of comparing two quantities of the same kind. But there may be the
situation when we have to compare more than two quantities which is called ‘continued ratio’.
Example: - A & B having ratio of 5:7, divide Rs.60000 between them- Share of ‘A’ = 60000*5/12 =
Rs. 25000 and share of ‘B’ = 60000*7/12 = Rs. 35000.
Example: - A profit of Rs. 8920 is to be divided among four people in the ratio of 5:9:11:15. Here,
share of 1st person = 8920*5/40 = Rs. 1115; 2 nd person = 8920*9/40 = Rs.2007, 3 rd person =
8920*11/40 = Rs. 2453; 4th person = 8920*15/40 = Rs.3345
Example: - Combined ratio between 3 friends is A:B = 4:5 and B:C = 3:2. You are required to divide
Rs. 74000 among three friends. Continued Ratio would be – 12:15:10 Share of ‘A’ = Rs. 24000;
Share of ‘B’ = Rs. 30000; Share of ‘C’ = Rs. 20000
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
“Inverse Ratio”
It contains term of which an increase in one results in the decrease in another. It deals with reverse in
position, order, direction or tendency (reciprocal) – opposite to direct. In other words, increase in one
quantity causes decrease in other quantity than it is called inverse relation.
Example: - Suppose that 20 men build a house in 6 days. If men are increased to 30 than they take 4
days and if men become 40 than they take 3 days to build the same house.
“It can be seen that as a number of men is increased than the time taken to build the house is
decreased in the same ratio”.
Remember –
The ratio of two quantities is a fraction that tells how many times one quantity is of the other.
The ratio 2:5 is different from 5:2.
The ratio can be expressed as a fraction 9:4 or 9/4.
Any quantity of two ratios is called a proportion.
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2. PROPORTION
A proportion is a mathematical comparison between two numbers. Often, these numbers can
represent a comparison between things or people. A part, share, or number considered in comparative
relation to a whole. For example: say you walked into a room full of people. You want to know how
many boys there are in comparison to how many girls there are in the room. You would write that
comparison in the form of a proportion. You can write mathematical proportions in two ways. You
can compare the numbers with colons, or you can write the proportion in the form of equivalent
fractions.
Proportion says that two ratios (or fractions) are equal. Example: 1/3 = 2/6
Four quantities a, b, c, d, are said to be in proportion if a/b = c/d .The relationship between different thi
ngs with respect to comparative size, number, or degree; relative magnitude or extent is called
proportion.
Example: - A ropes length and weight are in proportion. When 20m of rope weighs 1kg, then:
40m of that rope weighs 2kg; 200m of that rope weighs 10kg etc. So, proportion is 20/1 = 40/2
Example: - A picture measuring 3.5" high by 5" wide is to be enlarged so that the width is
now 9inches. How tall will the picture be?
In other words, the photo lab will be maintaining the aspect ratio; the rectangles representing the
outer edges of the pictures will be similar figures. So, proportion would be:
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
9 × 3.5 = 5 × h
31.5 = 5h
6.3 = h
Example: - The lengths of the sides are given by A = 48 mm, B = 81 mm and a = 21 mm. Find the
lengths of sides b, rounded to the nearest whole number.
Here, length of one side is given. So, we can calculate length of another side while considering
proportion
b × 48 = 21 × 81
48b = 1701
b = 35.4375
“Continued Proportion”
Quantities are said to be continued if the first is related to the second; the second is related to the
third; the third is related to the forth and so on. Example: a/b = b/c = c/d = d/e
Example: Three persons A, B and C earned a profit of 70000 Rs in a business. Their share in profit is
as follows
A:B=4:2
B : C = 10 : 5
Ratio of each person is 40:20:10 or 4:2:1
Total amount of profit = 70000
Share of A = Rs. 40000; Share of B = Rs. 20000 and Share of C = Rs. 10000
“Inverse Proportion”
It is a relation between two quantities such that one increases in proportion as the other decreases.
Example: As distance increases than brightness decreases; as speed goes up than traveling time goes
down
Dr. Meghashree A. Dadhich
Business Mathematics – Unit-2
Example: 4 people can paint a wall in 3 hours. How long will it take 6 people to paint it?
Here, t= k/n (t = total time; k = constant of proportionality; n = number of people)
3 = k/4 or k = 12
Now, time will be taken by 6 people = 12/6 = 2 hours.
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3. VARIATION
Variation says the change in the form, position, condition or amount of something within a certain
limits. In other words, it shows the extent or degree to which something varies. The following are the
type of variation –
Direct Variation: - Where both variables are either increase or decrease together.
Inverse or Indirect Variation: - Where one variable increases and the other variable
decreases.
Joint Variation: - Where more than two variables are related directly.
Combined Variation: - Which involves a combination of direct or joint variation.
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4. PERCENTAGE
Percentage means out of a hundred; it is also a form of fraction. The symbol for percentage is ‘%’. A
percentage is a way of expressing a number as a fraction of 100. Example: 10 out of 100 is 10/100 or
10%.
Conversion of Fraction into Percent
Represent ½ as a % = 50%;
Represent 5/8 as a % = 5/8*100 = 125/2 = 62.50%;
Covert 13/4 into % = 7/4*100 = 700/4 = 175%
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Dr. Meghashree A. Dadhich