Real-Life Math -- Solution
You're trying to forecast if your company has enough money in the
bank to purchase a new gold mine in the next month. Start by calculating your
revenue.
Revenue
First you have to figure out how much
gold will be lost in the refining process. Take the total number of ounces
of gold and multiply that number by the percent of gold that is lost in processing:
5,000
x 0.10 = 500 ounces
Now take the number of ounces you
will lose and subtract it from the total produced:
5,000
- 500 = 4,500 ounces
Because some of the gold will be
held in inventory now you have to take the amount of refined gold and multiply
that number by the percent of inventory.
4,500 x 0.10
= 450 ounces
Now take that number off of the refined
gold.
4,500 - 450 = 4,050 ounces
If
you can only sell 94 percent of your gold then you have to multiply the refined
gold that isn't in inventory by the percentage of gold you will presumably
not be able to sell.
4,050 x 0.06 = 243 ounces
Subtract
that from the refined gold that is not in inventory:
4,050
- 243 = 3,807 ounces
If you estimate that you can sell
your gold for $400 per ounce multiply that number by the total number of ounces
you can sell:
3,807 x 400 = $1,522,800
$1,522,800
is your total estimated revenue for the month
Expenses
If
it costs approximately $350 to produce an ounce of gold after refining then
you have to multiply the cost by the ounces of gold:
350
x 4,500 = $1,575,000
To figure out if you made money
take your revenue and compare it with your expenses:
Revenue:
$1,522,800
Expenses: $1,575,000
You
predict the company has spent $52,200 more than they collected in the month.
Obviously they can't afford to buy a new mine unless they borrow money from
the bank. To figure out how much they need to borrow take how much they have
in the bank and subtract that by the amount they lost in the month.
1,000,000
- 52,200 = $947,800
Now take how much they need to borrow
to buy the mine and subtract the amount that they have:
3,000,000
- 947,800 = $2,052,200
Now you just have to tell your
boss that they need to borrow $2,052,200 to buy the mine. It may seem like
a lot but when you are dealing with gold, it's practically petty cash!
Although
accountants deal with numbers all day long, that doesn't mean they have to
be math geniuses. These days, computers do the grunt work of calculating everything.
However, strong math skills are still important because of the training it
gives your mind.
"It's having the type of mind," says accountant Tarsha
Jacobs. "The skills that you need to solve different math equations are the
same skill set to be successful in accounting."
Accounting professor
Satiprasad Bandyopadhyay agrees. "I wouldn't say day-to-day accounting involves
a lot of high-level math, but we require students to have calculus because
calculus requires brain power and there are complex issues in accounting,"
he says. "[For example], tax issues can be complicated. Calculus won't solve
the problem, but someone comfortable with those things probably has the brain
power to solve those problems."