Question

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided for seniors-home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow: Home Meals On House- Total Nursing Wheels keeping $924,000 $266,000 $ 406,000 $ 252,000 471,000 120,000 199,000152,000 453,000 146,000 207,000 100,000 Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* Total fixed expenses Net operating income (loss) 69,800 8,600 40,200 21,000 43,600 20,900 7,300 15,400 114,100 40,100 38,500 35,500 184,800 53,200 81,200 50,400 412 300 122,800 167,200122 300 $ 40,700 $ 23,200 $ 39,800 $(22,300) *Allocated on the basis of program revenues. The head administrator of Jackson County Senior Services, Judith Miyama, considers last year's net operating income of $40,700 to be unsatisfactory; therefore, she is considering the possibility of discontinuing the housekeeping program. The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. Required: 1-a. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program? 1-b. Should the Housekeeping program be discontinued? 2-a. Prepare a properly formatted segmented income statement. 2-b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B What is the financial advantage (disadvantage) of discontinuing the Housekeeping program? < Req 1A Req 1B >

Answer 1

1a) Effect on net Current Total if operating Total Dropped income $924,000 $672,000 $319,000 $353,000 ($252,000) [House-Keep.'s share lost] $152,000 [House-Keep.'s share decreased] ($100,000) Sales Variable expenses $471,000 $453,000 Contribution margin Fixed expenses: $69,800 $43,600 $114,100 $184,800 $412,300 $69,800 $0 [No effect even if dropped] Depreciation of special van $15,400 [House-Keep.'s share decreased] $35,500 [House-Keep.'s share decreased] $0 [No effect even if dropped] $28,200 Liability insurance $78,600 $184,800 $361,400 Program admin.'s salaries Gen. administrative overhead Total fixed expenses $50,900 $40,700 ($8,400) ($49,100) Net operating income (loss) Therefore, discontinuing House-Keeping would decrease NOI by $49,100 1b) No. House-Keeping should not be discontinued as it results decrease in net operating income.

Meals on 2a) Current Home House- Total Nursing $266,000 $120,000 $146,000 Wheels Keeping $406,000 $252,000 $199,000 $152,000 $207,000 $100,000 Sales $924,000 $471,000 $453,000 Variable expenses Contribution margin Traceable Fixed expenses: $21,000 $15,400 $35,500 $71,900 $28,100 [Contribution margin - Traceable fixed exp. Depreciation of special van $69,800 $43,600 $114,100 $227,500 $225,500 $8,600 $20,900 $40,200 $7,300 $38,500 $86,000 $121,000 Liability insurance Program admin.'s salaries Total Traceable Fixed expenses $40,100 $69,600 $76,400 Product line segment margin $184,800 $40,700 General administrative overhead Net operating income (loss) 2b) Yes, a segmented income statement format would be more usable to management in assessing the long-run profitability of the various product lines.