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 $ 929,000 $266,000 $ 410,000 $ 253,000 478,000 114,000 208,000 156,000 451,000 152,000 202,000 97,000 Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* Total fixed expenses Net operating income (loss) 69,500 8,700 40,600 2 0,200 43,500 20,500 7,200 15,800 114,400 40,600 38,000 35,800 185,800 53,200 82,000 5 0, 600 413,200 123,000 167,800 122,400 $ 37,800 $ 29,000 $ 34,200 $(25,400) *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 $37,800 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?

Answer 1

Requirement:1 Contribution Margin Lost of the Housekeeping Progremme is Drop 97000 Fixed Cost Can be Avoided Liability insurance 15800 Program Administrator's Salary 35800 51600 Decrease in Net operating inome -45400 Financial Advantage ( Disadvantage) of Drop the Housekeeping Financial Disadvantage : ($ 45,400) should the housekeeping programme be discontinues ? Answer : No Segmented Income Statement Meals on Home House Total Nursing Wheels Keeping Revenue 929000 2660001 410000 253000 Varaible Expenses 114000 208000 156000 Contribution Marrgin (loss) 451000 152000 2020001 97000 Treaceable Fixed Expenses Depreication 69500 8700 40600 20200 Liability Insurance 43500 205001 7200 15800 Programe Administrators' salaries 114400 406001 38000 35800 Total Traceable Fixed Expenses 2274001 698001 85800 71800 Programme segment Margin (loss) 223600 82200 116200 25200 General Administrative overheads Net Operating Income (Loss) 37800 Would a segmented income statement formate be more useful Answer : YES