Question

The actual income for this month has been reduced by $200. How can this budget be modified so there will be a positive actual net income?

Monthly Budget
Budgeted Amount
Actual Amount
Income
Wages

$1250

$1050
Expenses
Rent
Utilities
Food
Clothes
Cell Phone

$450
$150
$220
$200
$75

$____
$____
$____
$____
$____
Net Income
$155
$____
a.
This budget can be modified by increasing the amount spent on food and utilities and decreasing the amount spent on clothes and rent, thereby maintaining a positive actual net income.
b.
This budget can be modified by reducing the amount spent on rent and utilities, thereby reducing overall expenses to have the maximum amount of money for all other expenses.
c.
This budget can be modified by reducing the amount spent on food and clothes, thereby reducing overall expenses to have the maximum amount of money for fixed expenses and maintaining a positive actual net income.
d.
This budget cannot be modified.

Answer 1

First compute the actual net income:

- Actual income = $1,050
- Total expenses (unchanged) = 450 + 150 + 220 + 200 + 75 = $1,095
- Actual net income = 1,050 − 1,095 = −$45 (a deficit)

You need to reduce expenses by at least $46 to make the actual net income positive. Options b and c both could work, but c is the best practical choice because food and clothes are variable/discretionary and easier to trim than rent or utilities. For example, cutting food by $23 and clothes by $23 saves $46, giving a small positive net income of $1.

Answer: c.