THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF BANGLADESH

CMA JUNE, 2018 EXAMINATION

BUSINESS LEVEL
SUBJECT: GE 03. FUNDAMENTALS OF BUSINESS MATHEMATICS.

INDICATIVE SOLUTION
Q. No. 1
(a) Find the value of X in terms of a, b, c and Y, from: Y = 2√(𝑎𝑏𝑋 ÷ 𝑐)
Solution: Y = 2√(𝑎𝑏𝑋 ÷ 𝑐)
=> Y2 = 4(abX ÷ c)
=> Y2 = 4abX ÷ 4c
=> 4abX = Y2 x 4c
=> X = 4Y2c ÷ 4ab
=> X = Y2c/ab. (Ans.)
(b) Solve for x from: − 3x + 10 > 40
Solution: − 3x + 10 > 40
 - 3x > 40 – 10
 -3x > 30
 x < {30/(-3)}
 x < -10. (Ans.)
(c) A person pays no tax on the first Tk.2,50,000 of earnings and then 10% tax on the
remainder of earnings. If s/he wishes to have Tk.6,10,000 net of tax earnings, what gross
earnings does s/he need?
Solution: Here, taxable income net of tax is = Tk.6,10,000 – Tk.2,50,000
= Tk.3,60,000.
So, the taxable income corresponding to this Tk.3,60,000 is
=Tk.{3,60,000/(1- 0.10)}
=Tk.Tk.4,00,000
So, the person’s gross earnings is = Tk.2,50,000 + Tk.4,00,000
=Tk.6,50,000. (Ans.)
(d) A small company produces specialized posters. The total cost is made up of three
elements – materials, labor and administration as follows:

Materials Tk.0.50 per poster

Labor Tk.15 per hour
Administration Tk.10 per 100 plus Tk.50
The set up time for printing takes two hours and the posters are run off at the rate of 300
per hour. If the number of posters produced is denoted by N, write down the formulae for
the following in Tk.:
(i) the total cost of materials,
(ii) the time taken to produce the posters,
(iii) the total labor cost of production,
(iv) the administration cost.
Solution: Here, (i) Total cost of materials for N posters = 0.50N.
(ii) Time taken to produce N posters = 2 + N/300.
(iii) Total labor cost to produce N posters = 15 (2 + N/300).
(iv) Administrative cost = 10. (N/100) + 50 = 50 + N/10.

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(e) For statistical data, mention various types of the measure of dispersion. Which one is the
best measure and why?
Solution: In statistical data the various measures of dispersion are:
● the range;
● the interquartile range;
● the quartile deviation;
● the mean absolute deviation;
● the standard deviation;
● the variance
● the coefficient of variation.
Among these measures, the standard deviation is the best measure because it tells how closely
the values of the data set are clustered around the mean.
Q. No. 2.
(a) State at least four characteristics of quality data.
Solution: Characteristics of good quality data are accuracy, completeness, reliability, relevance
and timeliness. Accuracy means the information is correct in every detail. Completeness
is the comprehensiveness of the information. Reliability is the ability of data to match with
other trusted resources. Relevance means the one really needs the particular information.
And timeliness is the ability of its use for real-time reporting.
(b) A firm has the workforce with the following age structure:
Age-group (years) 25-30 30-35 35-40 40-45 45-50 50-55 55-60 60-65
Number of persons 5 10 13 28 21 12 8 3
Calculate the mean, median, mode, standard deviation and coefficient of variation.
Solution:
Age-group Mid Point Frequency,f d=(x-42.5)/5 fd fd2 c.f.
(Class) x (no. of Prsn)
25-30 27.5 5 -3 -15 45 5
30-35 32.5 10 -2 -20 40 15
35-40 37.5 13 -1 -13 13 28
40-45 42.5 28 0 0 0 56
45-50 47.5 21 +1 +21 21 77
50-55 52.5 12 +2 +24 48 89
55-60 57.5 8 +3 +24 72 97
60-65 62.5 3 +4 +12 48 100
∑N=100 ∑fd=+33 ∑fd2=287

∑ 𝑓𝑑 33
̅
Mean, 𝑋 =𝐴+ × 𝑐 = 42.5 + × 5 = 𝟒𝟒. 𝟏𝟓
𝑁 100

Here 50th class i.e. 40 – 45 is the median class.

𝑁 100
−𝑝.𝑐.𝑓 −28
𝑀𝑒𝑑𝑖𝑎𝑛 = 𝐿 + 2
× 𝑐 = 40 + 2
× 5 = 𝟒𝟑. 𝟗𝟑
𝑓 28

Here with the highest frequency 28, the class 40 – 45 is the modal class.
∆1 28−13
So, 𝑀𝑜𝑑𝑒 =𝐿+ × 𝑐 = 40 + (28−13) × 5 = 𝟒𝟑. 𝟒𝟏
∆1 +∆2 +(28−21)

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 ∑ 𝑓𝑑 2 ∑ 𝑓𝑑 2 287 33 2
Standard deviation, 𝜎 =√ − ( ) × 𝑐 = √100 − (100) × 5 = 𝟕. 𝟖
𝑁 𝑁

𝜎 7.9
Co-efficient of variation, C.V. = × 100 = × 100 = 𝟏𝟕. 𝟖𝟗
𝑋̅ 44.15

(c) Calculate Laspeyre's price index and Paasche's price index for the following data:
Meal Type Meals for 2010 Meals for 2011
Price per meal in Tk. Quantity Price per meal in Tk. Quantity
Fish & Chips 1800 20 2000 18
Pizza 1600 22 1800 17
Rice & Curry 2200 18 2400 20
Roast Lunch 2400 15 2600 11
Solution:
∑[𝑃𝑟𝑖𝑐𝑒 𝑎𝑡 𝑂𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑 × 𝐵𝑎𝑠𝑒 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦]
𝐿𝑎𝑠𝑝𝑦𝑒𝑟𝑒 ′ 𝑠𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 𝑖𝑛 2011 = × 100
∑[𝑃𝑟𝑖𝑐𝑒 𝑎𝑡 𝐵𝑎𝑠𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 × 𝐵𝑎𝑠𝑒 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦]

(2000 × 20) + (1800 × 22) + (2400 × 18) + (2600 × 15)

= × 100
(1800 × 20) + (1600 × 22) + (2200 × 18) + (2400 × 15)

161800
= × 100
146800

= 110.22

𝑃𝑎𝑎𝑠𝑐ℎ𝑒𝑒 ′ 𝑠𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 𝑖𝑛 2011

∑[𝑃𝑟𝑖𝑐𝑒 𝑎𝑡 𝑂𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑 × 𝑂𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦]
= × 100
∑[𝑃𝑟𝑖𝑐𝑒 𝑎𝑡 𝐵𝑎𝑠𝑒 𝑃𝑒𝑟𝑖𝑜𝑑 × 𝑂𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦]

(2000 × 18) + (1800 × 17) + (2400 × 20) + (2600 × 11)

= × 100
(1800 × 18) + (1600 × 17) + (2200 × 20) + (2400 × 11)

143200
= × 100
130000

= 110.15

(d) A pie chart is used to display the following data:

(i) Sales of product J 43
(ii) Sales of product V 25
(iii) Sales of product C 27
What angle in degrees on the pie chart would represent product C’s share of sales?

Solution:
Product C’s share of sales in degrees on the pie chart is
= [360 ÷ (43 + 25 + 27)] x 27 degrees
= [360 ÷ 95] x 27 degrees
=102.32 degrees.

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Q. No. 3
(a) An investor is considering three options, only one of which h/se can afford. All three have
the same initial outlay, but there are different income patterns available from each.
Investment A pays Tk.20,000 each year at the end of the next five years. Investment B
pays Tk.10,000 at the end of the first year, Tk.15,000 at the end of the second year, and
so on until the final payment of Tk.30,000 at the end of the fifth year. Investment C pays
Tk.40,000 at the end of the first year, Tk.30,000 at the end of the second year, and
Tk.20,000 at the end of the third. The investor estimates a constant rate of interest of 10%
throughout the next 5 years. Which investment should s/he choose?

(b) For project C above, if the initial outlay is Tk.70,000, then find the IRR for C. What is the
profitability index of this project?

(c) In project financial analysis, write down the accept-reject criterion for pay-back period,
NPV, IRR and Profitability Index.

Solution:
Here to evaluate the acceptance of an option the PV of all the options will have to be
determined.
𝐴 1 20000 1
(a) PV(A) = [1 − ] = × [1 − ] = 75,815.74
𝑟 (1+𝑟)𝑛 0.1 (1+0.1)5

𝑇𝑘.10,000 𝑇𝑘.15,000 𝑇𝑘.20,000 𝑇𝑘.25,000 𝑇𝑘.30,000

PV(B) = [(1+0.10)1 + (1+0.10)2 + + + ]
1.103 1.104 1.105
= 𝑇𝑘. 72,216.88
𝑇𝑘.40,000 𝑇𝑘.30,000 𝑇𝑘.20,000
PV(C) = [(1+0.10)1 + (1+0.10)2 + ] = 𝑇𝑘. 76,183.32.
1.103

From the above analyses, the investor can choose option C as its PV is the largest.

(b) With the initial outlay of Tk.70,000, the NPV @10% rate is (76,183.32 – 70,000) =
Tk.6,183.32. If the discount rate is taken as 18%, then the NPV is

𝑇𝑘. 40,000 𝑇𝑘. 30,000 𝑇𝑘. 20,000

𝑁𝑃𝑉(𝐶) = −70,000 + [ + + ] = − 𝑇𝑘. 2,383.55.
(1 + 0.18)1 (1 + 0.18) 2 (1 + .18)3

𝑇𝑘.6,183.32
So, 𝐼𝑅𝑅 = 10% + × (18% − 10%) = 15.77%
𝑇𝑘.6,183.32−(−𝑇𝑘.2,383.55)

𝑃𝑉 𝑜𝑓 𝐶𝐼𝐹 𝑇𝑘. 76,183.32

𝑆𝑜, 𝑃𝐼 = = = 1.0883.
𝑃𝑉 𝑜𝑓 𝐶𝑂𝐹 𝑇𝑘. 70,000
(C) Accept-reject Criteria for-
Pay-back period: If the pay-back period is less than some predetermined period, then the
option is accepted, otherwise rejected.

NPV: If the NPV is positive, the project might be taken, if NPV is negative, the project is
rejected and if NPV = 0 then it can be accepted or rejected.

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IRR: If IRR is greater than the opportunity cost, then accepted. If IRR is less than the
opportunity cost, it is rejected. But if IRR is equal to the opportunity cost then it can be accepted
or rejected.

PI: If PI is greater than one the project is accepted. If PI is less than one, it is rejected. But if PI
is equal to one then it can be accepted or rejected.

Q. No. 4
(a) Carefully study the following spread-sheet and answer the questions below:
A B C D
1 Unit selling price Tk.65 Annual volume 10,000
2
3 Seasonal
Variation
4 Quarter-1 -20%
5 Quarter-2 -35%
6 Quarter-3 10%
7 Quarter-4 45%
8
9 Sales budget Seasonal variation Quarterly Quarterly
(units) volume turnover
10 Quarter-1
11 Quarter-2
12 Quarter-3
13 Quarter-4

(i) The cell B10 shows the seasonal variation in units for quarter-1. Write a suitable
formula for this cell so that it can be copied for cells B11, B12 and B13.
(ii) The cell C10 shows the sales volume in units for quarter-1. Write a suitable formula
for this cell so that it can be copied for cells C11, C12 and C13.
(iii) The cell D10 shows the turnover in quarter-1. Write a suitable formula for this cell so
that it can be copied for cells D11, D12 and D13.

Solution: (a)
(i) B10=($D$1/4)*B4
(ii) C10=($D$1/4)*(1+B4)
(iii) D10=C10*$B$1

(b) The table below shows the demand for a particular brand of razor in a shop for each of
the last nine months.

Month 1 2 3 4 5 6 7 8 9
Demand 10 12 13 17 15 19 20 21 20
(i) Calculate a three month moving average for months three to nine. What would be your
forecast for the demand in month ten?
(ii) Apply exponential smoothing with a smoothing constant of 0.3 to derive a forecast for the
demand in month ten.
(iii) Which of the two forecasts for month ten do you prefer and why?

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Solution: (i)
Period Month Demand 3-month 3-month Epo. Smooth. Remarks
(D) total (T) average (A) α = 0.3
1 1 10 - 10
2 2 12 - 10 The formula is:
3 3 13 - 10.6 At+1=(Dt+ Dt-1+ Dt-2)/3
4 4 17 35 11.67 11.32
5 5 15 42 14.00 13.024
6 6 19 45 15.00 13.6168
7 7 20 51 17.00 15.23176
8 8 21 54 18.00 21.430472
9 9 20 60 20.00 20.8709
10 10 61 20.33 19.7387

Hence, the month 10 demand would be 20.33.

(ii) Smoothing constant α = 0.3.

Now from Ft+1 = Ft+ α (Dt - Ft)

For first period, let F1 = D1 = 10
So, F2 = F1+ α (D1 - Ft) = 10 + 0.3 (10 – 10) = 10
F3 = F2+ α (D2 – F2) = 10 + 0.3 (12 – 10) = 10.6
F4 = F3+ α (D3 – F3) = 10.6 + 0.3 (13 – 10.6) = 11.32
Thus calculating we can get from the above table, the month 10 demand is 19.7387≈20
(rounded).
(iii) From the calculation, if rounded the demand forecasted for month 10 are same. Taking the
full figure the later forecast is preferable because of the trend of period 7, 8 and 9.

(c) Carefully study the following spread-sheet and answer the questions below:
A B C D E
1
2
3
4 5 6 8 =B4+C4*D4
5 3 1 2 =(B5+C5)*2
6 9 7 2 =B6-C6/2
7 4 5 10 =(B7+C7)/D7
8 5 7 8 =B8+C8*D8-2
9 6 6 =(B9-1)*(C9+4)
10
11
12
13
14 9 7 -2 =B14-C14*D14
15 5 8 -6 =(B15-C15)^2
16 12 8 -4 =(B16^2)+(C16)
17 4 16 -2 =(B16/C17)*D17^2
18 17 8 =(B18+C18)/0.5
19 7 20 6 =C19/(B19+C19)

From the above spreadsheet find the values of E4, E5, E6, E7, E8, E9, E14, E15, E16,
E17, E18, and E19.

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Solution:
E4=B4+C4*D4=5+6*8=5+48=53
E5=(B5+C5)*2=(3+1)*2=8
E6=B6-C6/2=9-7/2=9-3.5=5.5
E7=(B7+C7)/D7=(4+5)/10=9/10=0.9
E8=B8+C8*D8-2=5+7*8-2=5+56-2=59
E9=(B9-1)*(C9+4)=(6-1)*(6+4)=5*10=50
E14=B14-C14*D14=9-7*(-2)=9+14=23
E15=(B15-C15)^2=(5-8)2=9
E16=(B16^2)+(C16)=122+8=144+8=152
E17=(B16/C17)*D17^2=(12/16)*(-2)2=(12/16)*40.75*4=3
E18=(B18+C18)/0.5=(17+8)*0.5=25*0.5=12.5
E19=C19/(B19+C19)=20/(7+20)=20/27=0.74074.

(d) Mrs. Sifat wants to plan a trip to Hawaii with her husband on their 10th wedding
anniversary in two years. She anticipates that the all-inclusive trip will cost $9500 for both
of them and wants to start saving. How much should she deposit at the end of each
month into her account that pays 12% compounded monthly to pay for the trip in two
years?
Solution: Here, the future value (FV) is $9500, Period n = 24 months, rate of interest
r=12%.
𝐴 𝑟 12𝑛
We know, FV= 𝑟 [(1 + 12) − 1]
12

𝐴 .12 12×2
=> 9500 = .12 [(1 + 12 ) − 1]
12

=> 𝐴 = $352.20

So, the monthly deposit would be $352.20.

Q. No. 5
(a) A pet food company has developed a low-fat dog food designed to make overweight dogs
loss weight. In field tests on 1,000 pet dogs, some dogs ate the new food and some a
normal dog food. The results of these tests were as follows:

Given low-fat food Given normal food

Lost weight 200 250
No weight loss 300 250
Find:
(i) The probability that a dog has lost weight.
(ii) The conditional probability that a dog has lost weight, given that it received low-fat
food.
(iii) The conditional probability that a dog was given the normal food, given that it lost
weight.

Solution: (a) Here,

Given low-fat food Given normal food Total

Lost weight 200 250 450
No weight loss 300 250 550
500 500 1000

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 (i) P(a dog lost weight) = 450/1000=0.45
(ii) P(lost weight∣low-fat food) = 200/500 = 0.40
(iii) P(normal food∣lost weight) = 250/450 = 0.56.

(b) A salesman is known to sell a product in 3 out of 5 attempts while another salesman is 2
out of 5 attempts. Find the probability that
(i) No sale will be effected when they both try to sell the product and
(ii) Either of them will succeed in selling the product.

Solution: (b) Here, P(Sale by first person) = 3/5; so P(No sale by first person) = 1 –
3/5 = 2/5.
Similarly, P(Sale by second person) = 2/5; so P(No sale by second person) = 1 – 2/5 =
3/5.
(i) P(No sale by both) = P(No sale by first person) x P(No sale by second
person)
=(2/5) x (3/5)
=6/25
=0.24.
(ii) P(Either of them succeed)
= P(Sale by first person)x P(No sale by second person) + P(No sale by first
person)x P(Sale by second person)
=(3/5)x(3/5) + (2/5)x(2/5)
=9/25 + 4/25
=13/25
=0.52.

(c) A West Coast Publishing Company keeps accurate records of its monthly expenditure for
advertising and its total monthly sales. For the first ten months of 2017, the records
showed the following (note that units are in dollars):
Advertising (in thousands) 43 44 36 38 47 40 41 54 37 46
Sales (in millions) 74 76 60 68 79 70 71 94 65 78

(i) Find the least-squares prediction equation appropriate for the data.
(ii) If the company plans to spend $80,000 for advertising next month, what is their
predicted sale? (Assume that all other factors can be neglected).
Solution: (c) (i) Here, if the equation be of the form y = a + bx, then the following
calculations can be made to get the values of a and b:
Advertising (‘000), x Sales (million), y x2 xy
43 74 1849 3182
44 76 1936 3344
36 60 1296 2160
38 68 1444 2584
47 79 2209 3713
40 70 1600 2800
41 71 1681 2911
54 94 2916 5076
37 65 1369 2405
46 78 2116 3588
∑x=426 ∑y=735 ∑x =18416
2 ∑xy=31763

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 𝑛 ∑ 𝑥𝑦 − (∑ 𝑥)( ∑ 𝑦) 10 × 31763 − 426 × 735 4520
𝑏= = = = 1.6841
𝑛 ∑ 𝑥 2 − (∑ 𝑥)2 10 × 18416 − (426)2 2684

426 736
𝑋̅ = = 42.6 𝑎𝑛𝑑 ̅𝑌 = = 73.6
10 10

𝑎 = 𝑌̅ − 𝑏. 𝑋̅ = 73.6 − 1.6841 × 42.6 = 1.86

So, the required equation is, y = 1.86 + 1.68x.

(ii) If the advertisement expenditure is $80,000, then the sale will be = 1.86 + 1.68 x 80 =
136.26 million.
Q. No. 6
(a) Solve the following simultaneous equations graphically and algebraically:
4x + 3y = 24
7x + 5y = 35
Solution: 4x + 3y = 24 - - - - - - - - - - - - - - (i)
7x + 5y = 35 - - - - - - - - - - - - - - (ii)
From equation (i) we get, 3y = 24 – 4x
 y = (24 – 4x)/3
Putting this value of y in equation (i),
7x + 5[(24 – 4x)/3] = 35
 7x + (120 – 20x)/3 = 35
 21x + 120 – 20x = 105 [multiplying both sides by 3]
 x + 120 = 105
 x = 105 – 120
 x = - 15
So, y = (24 – 4x)/3 = {24 – 4 ( - 15)}/3 = (24 + 60)/3 = 28
That is x = - 15 and y = 24 (solved).
(b) You have been supplied with the following data regarding the grades of candidates in an
interview presentation and their written exam scores:
Candidate Grade awarded Exam score
Mr. A A 70
Mr. B B 76
Mr. C A 58
Mr. D C 88
Mr. E D 81
What is the Spearman’s correlation coefficient?
Solution:
Ranking the interview grades with best is 1 and also the exam scores:
Rank of Grade Rank of Score d d2
Candidate
A 1.5 4 -2.5 6.25
B 3 3 0 0.00
C 1.5 5 -3.5 12.25
D 4 1 3 9.00
E 5 2 3 9.00
Total: 36.50

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Hence, the Spearman’s correlation coefficient is

(c) What is the difference between “risk” and “uncertainty”?

Ans.: Difference between risk and uncertainty:
Risk Uncertainty
The probability of winning or losing Uncertainty implies a situation where the
something worthy is known as risk. future events are not known.
It can be measured. It cannot be measured.
Chances of outcomes are known. Chances of outcome is unknown.
Controllable. Uncontrollable.
Minimization is possible. Minimization is not possible.
Probability can be assigned. Probability cannot be assigned.

(d) Write a short note on annuity.

Ans.: Annuity is a series of receipts or payments of a fixed amount for a specified number of
periods/years. It is a pattern of cash flows that are equal in each year. The interval is generally
a year, but it may be of six months or a quarter or a month. There are mainly two types of
annuity problems:
1. Compound value (Terminal Value- TV) of an annuity: To get a fixed amount after a
specified period what installment should be deposited per year or installment, if there is
a fixed rate of interest.
2. Present value (PV) of an annuity: To get a series of equal amount per period by
depositing a fixed amount at the beginning, if there is a specific rate of interest.
(e) In the analysis of inter-relationship of variables, the obtained coefficient of determination is
0.49. What do you mean by this figure?
Ans.:The coefficient of determination is a measurement used to explain how much variability of
one factor can be caused by its relationship to another related factor. A value of 0.49
suggests that 49% of the dependent variable is predicted by the independent variable.
(f) In order of mathematical operations, what is meant by BEDMAS? How the sequence of
the letters can be explained?
Ans.: In math, there is an agreed-upon set of procedures for the order in which operations are
performed. When follow the correct order, the answer will be correct. We should work from left
to right as used the BEDMAS order of operations. Each letter stands for:
 B - Brackets
 E - Exponents
 D - Division
 M - Multiplication
 A - Addition
 S – Subtraction.
(g) In the model of time series, Y = T × S × C × R, which letter represents the seasonal
variation? How this seasonal variation affects business decision? Explain shortly.
Ans.: The seasonal variation/component is represented by S. The seasonal component
accounts for the regular variations that certain variables show at various times of the year.
Business decision is seriously affected by seasonal variation because the demand of a
product changes due to the variation. Umbrella is mostly demanded during the rainy
season and least demanded in the winter in Bangladesh. So, production decision is
affected with the intensity of seasonal variation.

= THE END =

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