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: Meals On Nursing Wheels keeping Home House Total Revenues $ 926,000 % 265,000 $ 406,eee $ 255,000 471,808 113,00 199,880 159,8a0 96, 8a0 Variable expenses Contribution margin 455,808 152,00 207,880 Fixed expenses: Depreciation Liability insurance Program administrators salaries General administrative overhead 20,180 15,700 37,800 51,8a0 413,308 121,90 167, 680 123,8a0 $ 41,7e 38,106 39,480(27,88a) 69,08e 43,808 115,300 185,288 8,206 28,600 48,100 53, 006 40,700 7,500 38,200 81,280 Total fixed expenses Net operating income (loss) 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 $41700 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

1
	Current Total	Total If house keeping is Dropped	Difference: Net Operating Income
Sales	926000	671000	-255000
Variable expenses	471000	312000	159000
Contribution margin	455000	359000	-96000
Fixed expenses:
Depreciation	69000	69000	0
Liability insurance	43800	28100	15700
Program administrators’ salaries	115300	78300	37000
General administrative overhead	185200	185200	0
Total fixed expenses	413300	360600	52700
Net operating income (loss)	41700	-1600	-43300
Financial (disadvantage) $(43300)
2
No, the housekeeping program should not be discontinued
3
	Total	Home nursing	Meals on Wheels	House Keeping
Sales	926000	265000	406000	255000
Variable expenses	471000	113000	199000	159000
Contribution margin	455000	152000	207000	96000
Traceable fixed expenses:
Depreciation	69000	8200	40700	20100
Liability insurance	43800	20600	7500	15700
Program administrators’ salaries	115300	40100	38200	37000
Total traceable fixed expenses	228100	68900	86400	72800
Program segment margins	226900	83100	120600	23200
General administrative overhead	185200
Net operating income (loss)	41700