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Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who...

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:

Total Home Nursing Meals On Wheels House-
keeping
Revenues $ 923,000 $ 263,000 $ 404,000 $ 256,000
Variable expenses 467,000 118,000 194,000 155,000
Contribution margin 456,000 145,000 210,000 101,000
Fixed expenses:
Depreciation 69,800 8,800 40,200 20,800
Liability insurance 43,700 20,400 7,300 16,000
Program administrators’ salaries 113,700 40,200 38,500 35,000
General administrative overhead* 184,600 52,600 80,800 51,200
Total fixed expenses 411,800 122,000 166,800 123,000
Net operating income (loss) $ 44,200 $ 23,000 $ 43,200 $ (22,000)

*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 $44,200 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?

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Answer #1
Part-1
Total Discontinue Net Increase/(Decrease)
AMOUNT $ AMOUNT $ AMOUNT $
Sales Revenue $923,000 $667,000 -$256,000
Less: Variable cost $467,000 $312,000 -$155,000
Contribution margin $456,000 $355,000 -$101,000
Less: Fixed cost
Liablity insurance $43,700 $27,700 -$16,000
Depreciation $69,800 $69,800 $0
Program Administrator salaries $113,700 $78,700 -$35,000
Common Fixed cost- General Admin Overhead $184,600 $184,600 $0
SEGMENT MARGIN $44,200 -$5,800 -$50,000
. Hence Financial Disadvantage of $50000 , in case of discontinuing the Housekeeping
Part-1.b No, Housekeeping Division Shall not be Discontinued
Part-2 SEGMENT-WISE INCOME STATEMENT
Total Home Nursing Meals on Wheels Housekeeping
AMOUNT $ AMOUNT $ AMOUNT $ AMOUNT $
Sales Revenue $923,000 $263,000 $404,000 $256,000
Less: Variable cost $467,000 $118,000 $194,000 $155,000
Contribution margin $456,000 $145,000 $90,000 $101,000
Less: Traceable Expense
Liablity insurance $43,700 $20,400 $7,300 $16,000
Depreciation $69,800 $8,800 $40,200 $20,800
Program Administrator salaries $113,700 $40,200 $38,500 $35,000
Total Traecable expense $227,200 $69,400 $86,000 $71,800
SEGMENT MARGIN $228,800 $75,600 $4,000 $29,200
Less: Common Fixed expense $184,600
Net Operating Income $44,200

2.b Yes

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