CAT Problems based on Income and Expenditure - Practice Questions & MCQ

Problems based on income and expenditure revolve around the earnings (income) of an entity and the costs (expenditure) it incurs. The aim is often to determine savings, profits, or losses, and understanding how changes in income or expenditure affect these values.

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Type 1: Basic Relation between Income, Expenditure, and Savings

Formulae:

1. Savings (or Profit) = Income - Expenditure

2. Loss = Expenditure - Income (When expenditure exceeds income)

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Type 2: Percentage Change in Income or Expenditure

Formulae:

1. Percentage Increase/Decrease = 

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Example:

A company had an income of ₹1,00,000 last year. Its expenditure was 80% of its income. If this year, its income increased by 10% and expenditure by 5%, find the percentage increase in its savings.

Solution:

Last year's expenditure = 80% of ₹1,00,000 = ₹80,000

Last year's savings = ₹1,00,000 - ₹80,000 = ₹20,000

This year's income = ₹1,00,000 + 10% of ₹1,00,000 = ₹1,10,000

This year's expenditure = ₹80,000 + 5% of ₹80,000 = ₹84,000

This year's savings = ₹1,10,000 - ₹84,000 = ₹26,000

Percentage increase in savings = 

= 

= 30%

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Tips and Tricks for Problems Based on Income and Expenditure:

1. Start with Basics: Always begin by calculating the basic values of income, expenditure, and savings.

2. Work with Percentages: Convert income and expenditure values into percentages of the total. This makes calculations smoother and helps in visualising the distribution.

3. Use Proportions: If exact numbers aren't given, assume a base income (like ₹100) and work with proportions. This often simplifies calculations.

4. Be Mindful of the Direction: Ensure you're clear on whether a value is increasing or decreasing. A small oversight can lead to a completely different answer.

5. Practice with Real-life Scenarios: Try solving problems based on real-world situations, like national economies or corporate financial reports. This will give you a practical understanding and make abstract problems easier to grasp.