The actual income for this month has been reduced by $200. How can this budget be modified so there will be an actual net income?
| Monthly Budget | Budgeted Amount | Actual Amount |
| :------------- | :-------------- | :------------ |
| Income | | |
| Wages | $1250 | $1050 |
| Expenses | | |
| Rent | $450 | $ |
| Utilities | $150 | $ |
| Food | $220 | $ |
| Clothes | $200 | $ |
| Cell Phone | $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
Answer (2)
Calculate the total budgeted expenses: $450 + $150 + $220 + $200 + $75 = $1095.
Calculate the actual net income: $1050 - $1095 = -$45.
Determine the required expense reduction to achieve a net income of $1: $1095 - $1050 + $1 = $46.
Reduce the rent by $46: $450 - $46 = $404, resulting in a new net income of 1. T h e f ina l an s w er i s t ore d u ce t h ere n t an d u t i l i t i es . \boxed{\text{reduce the amount spent on rent and utilities}}$
Explanation
Understanding the Problem The problem states that the actual income for the month is reduced by $200. We need to determine how to modify the budget to achieve a positive actual net income.
Calculating Total Budgeted Expenses First, let's calculate the total budgeted expenses: 450 + 150 + 220 + 200 + 75 = 1095
Calculating Actual Net Income The actual income is 1050. L e t ′ sc a l c u l a t e t h e a c t u a l n e t in co m e u s in g t h e b u d g e t e d e x p e n ses : 1050 − 1095 = − 45 $ The actual net income is -$45, which means there is a loss.
Determining Required Expense Reduction To achieve a positive net income, we need to reduce the expenses. Let's aim for a net income of $1. The required reduction in expenses can be calculated as follows: reduction = total_expenses - actual_income + desired_net_income reduction = $1095 - $1050 + $1 = $46. So, we need to reduce the expenses by $46 to achieve a net income of $1.
Modifying the Budget Now, let's consider how to allocate this reduction. Option (a) suggests increasing food and utilities while decreasing clothes and rent. This is not a good approach since we need to reduce expenses, not increase them. Option (b) suggests reducing rent and utilities. This is a viable option. Let's reduce the rent by $46. New rent = $450 - $46 = $404. The other expenses remain the same. The new total expenses = $404 + $150 + $220 + $200 + $75 = $1049. The new net income = $1050 - $1049 = $1.
Conclusion Therefore, the budget can be modified by reducing the amount spent on rent by $46, resulting in a positive actual net income of $1.
Examples
Budgeting is a crucial skill in personal finance. This problem demonstrates how to adjust a budget when income changes to maintain a positive cash flow. For example, if you lose your job and your income decreases, you need to adjust your expenses to ensure you're not spending more than you earn. This involves identifying areas where you can cut back, such as entertainment, dining out, or clothing, to align your spending with your new income level and avoid debt.
To achieve a positive net income after a reduction in actual income, one effective modification is to reduce the rent by $46, resulting in a new total expense of $1049. This adjustment allows for a net income of $1. Therefore, option (b) is the best choice to balance the budget and sustain a positive net income.
;
