Partial budgeting criterion: Adopt if 1 + 4 > 2 + 3. Given the following values: Additional returns 120; Forgone returns 80; Additional costs 60; Costs no longer incurred 30. Should adopt?

• A. Yes, adopt because 1 + 4 > 2 + 3
• B. No, do not adopt
• C. Indeterminate
• D. Adopt only if 1 + 4 >= 2 + 3 plus another consideration

Answer: (A)

Partial budgeting weighs incremental gains against incremental costs to decide whether to adopt a proposed change. The rule is that the sum of additional returns and cost savings should exceed the sum of forgone returns and new costs.

Here, additional returns are 120 and costs no longer incurred (cost savings) are 30, giving 150. Forgone returns are 80 and additional costs are 60, totaling 140. Since 150 is greater than 140, the proposed change has a positive net cash impact, so adopt. If the two sides were equal, other considerations would come into play.