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:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	932,000	$	269,000	$	407,000	$	256,000
Variable expenses		471,000		113,000		206,000		152,000
Contribution margin		461,000		156,000		201,000		104,000
Fixed expenses:
Depreciation		70,100		8,400		40,900		20,800
Liability insurance		44,000		20,700		7,900		15,400
Program administrators’ salaries		115,600		40,600		38,100		36,900
General administrative overhead*		186,400		53,800		81,400		51,200
Total fixed expenses		416,100		123,500		168,300		124,300
Net operating income (loss)	$	44,900	$	32,500	$	32,700	$	(20,300)

*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 $44,900 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.

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.

Total	Home Nursing	Meals On Wheels	House-keeping
Revenues
Variable expenses
Contribution margin
Traceable fixed expenses:
Depreciation
Liability insurance
Program administrators’ salaries
Total traceable fixed expenses
Program segment margins
General administrative overhead
Net operating income (loss)

2-b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?

Answer 1

solution: 1a -104000 contribution margin lost Avoidable cost: Liability insurance Program administrater salaries Financial advantage/Disadvantag) 15400 36900 -51700 1b.Should the housekeeping program be discontinued ? No as it results in financial disadvantage. Total Home nursing 932000 471000 461000 Meals on wheels 269000 113000 156000 House keeping 407000 256000 206000 152000 201000 104000 Part 2a Revenues Variable expenses Contribution margin Traceable fixed expenses: Depreciation Liability insurance Program administrators' salaries Total traceable fixed expenses Program segment margins General administrative overhead Net operating income (loss) 70100 44000 115600 229700 231300 186400 44900 8400 20700 40600 69700 86300 40900 7900 38100 86900 114100 20800 15400 36900 73100 30900 2b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services? Yes.