Question

A social agency receives a budget appropriation of $11,000 monthly from the municipality. Annual fixed costs are projected to be $20,000 and the variable cost per client was $238.50 last year. Although the agency projects its case load to increase by the usual 15% this year (as it has done historically), the municipality appropriated funds based on last year's case load. Which of the following strategies would be ineffective in dealing with the expected shortfall in budget appropriation for the agency? A. reducing the variable cost of serving a client B. reducing the total fixed costs C. reducing the number of clients served D. increasing funding from other sources O E. changing the measure of output used to calculate service

Answer 1

Option B is correct i.e reducing the total fixed costs as fixed costs can't be changed.

For example, if one has to pay a specific amount as rent then he/she has to pay that amount irrespective of any strategy.