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 $ 926,eee $ 266,eee $ 497,eee $ 253, eee 470, eee 128, eee 195, eee 155, eee 456,eee 146,eee 212,eee 98,eee Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses Net operating income (loss) 69,600 8,5ee 4 e, see 20,3ee 43,300 20,400 7,600 15,300 115,700 46,8ee 3 9, eee 35,900 185, 2ee53, 2ee81, 4ee 50,6ee 413,see 122,90€ 168,889 122, 180 42, 2ee S 23,1ee $ 43,200 $(24,100) $ *Allocated on the basis of program revenues. The head administrator of Jackson County Senior Services, Judith Mlyama, considers last year's net operating Income of $42,200 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? Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2A Reg 28 What is the financial advantage (disadvantage) of discontinuing the Housekeeping program? Financial advantage S 4.500 Req1A Req 1B >

Answer 1

Answer -

1-a. Answer -

Financial disadvantage

$46800

Calculation:

Contribution margin lost if the housekeeping program is discontinuing		($98000)
Less: Fixed costs that can be avoided
Liability insurance	$15300
Program administrators salaries	$35900
		$51200
Decrease in net operating income for the company as a whole		($46800)

Here,

The depreciation on small van is a sunk cost, and therefore it is not relevant to the decision.

The general administrative overhead is allocated and none of it would be avoided if the program were dropped, thus it is not relevant to the decision.

1-b. Answer -

No, the Housekeeping program should not be discontinued.

2-a. Answer -

	Total	Home Nursing	Meals on Wheels	Housekeeping
Revenue	$926000	$266000	$407000	$253000
Variable expenses	$470000	$120000	$195000	$155000
Contribution margin	$456000	$146000	$212000	$98000
Traceable fixed expenses:
Depreciation	$69600	$8500	$40800	$20300
Liability insurance	$43300	$20400	$7600	$15300
Program administrators salaries	$115700	$40800	$39000	$35900
Total traceable fixed expenses	$228600	$69700	$87400	$71500
Program segment margins	$227400	$76300	$124600	$26500
General administrative overhead	$185200
Net operating income (loss)	$42200

2-b. Answer -

Yes, Segment income statement format would be more useful to management in assessing the long-run financial viability of the various services.