Question

Jackson County Senior Services Is a nonprofit organizatlon devoted to providing essentlal services to senlors who live In their own homes within the Jackson County area. Three services are provided for seniors-home nursing, Meals On Wheels, and housekeeplng. Data on revenue and expenses for the past year follow Meals On House Home wheels Total Nursing keeping 265,eee 407, e00 256, eee 928,eee Revenues Variable expenses 469,00 117,ee8 194,eee 158,eee Contribution margin 148,0ee 459,e8e 213,eee 98,eee Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses 69,500 8,30e 48,400 28,8ee 20,800 43,60e 7,600 15,200 115,208 48,100 38, 208 36,980 185, 600 53,00e 81,400 51,200 122,200 167,600 413,900 124,100 45,10e 25,8ee 45,400 $(26,10e) Net operating income (loss) Allocated on the basis of program revenues. The head administrator of Jackson County Senlor Services, Judith Mlyama, conslders last year's net operating Income of $45,100 to be unsatisfactory; therefore, she is considering the possibility of discontinuing the housekeeping program. The depreclation In housekeeping is for a small van that Is used to carry the housekeepers and their equlpment 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 avolded if the housekeeping program were dropped, but the liability Insurance and the salary of the program administrator would be avolded. 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 financlal viability of the varlous serVices?

Answer 1

Solution 1a:

Computation of Financial Advantage (Disadvantage) of discontinuing House-keeping Program
Particulars	Continue House-keeping	Discontinue House-keeping	Financial advantage (disadvantage) of discontinuing House-keeping
Revenues	$2,56,000	$0	-$2,56,000
Variable expenses	$1,58,000	$0	-$1,58,000
Contribution Margin	$98,000	$0	-$98,000
Fixed Expenses:
Depreciation	$20,800	$20,800	$0
Liability Insurance	$15,200	$0	-$15,200
Program administrators' salaries	$36,900	$0	-$36,900
General administrative overhead	$51,200	$51,200	$0
Net Income	-$26,100	-$72,000	-$45,900

Financial Disadvantage = - $45,900

Solution 1b:

No. House keeping program should not be discontinued.

Solution 2a:

Segmanted Income Statement - Jackson Country Senior Services
Particulars	Total	Home Nursing	Meals on Wheels	House-Keeping
Sales	$9,28,000	$2,65,000	$4,07,000	$2,56,000
Variable expenses	$4,69,000	$1,17,000	$1,94,000	$1,58,000
Contribution margin	$4,59,000	$1,48,000	$2,13,000	$98,000
Traceable Fixed Expenses:
Depreciation	$69,500	$8,300	$40,400	$20,800
Liability Insurance	$43,600	$20,800	$7,600	$15,200
Program administrators' salaries	$1,15,200	$40,100	$38,200	$36,900
Total Tracable Fixed Expenses	$2,28,300	$69,200	$86,200	$72,900
Product Line segment margin (loss)	$2,30,700	$78,800	$1,26,800	$25,100
Common fixed expenses	$1,85,600
Net Operating Income (Loss)	$45,100

Solution 2b:

Yes, a segmented income statement format would be more useful.