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 $939,000 $ 270,000 $410,000 $ 259,000 464,000 115,000 191,000 158,000 475,000 155,000 219,000 101,000 Revenues Variable expenses Contribution margin Fixed expenses Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses Net operating income (loss) 69,400 44,200 115,600 187,800 417,000 $ 58,000 8,300 40,500 20,600 20,500 7,900 15,800 40,700 30,400 36,500 54,000 82,000 51,800 123,500 168.800 124,700 500 $ 50,200 $(23,700) "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 $58,000 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

1a
	Current Total	Total If house keeping is Dropped	Difference: Net Operating Income
Sales	939000	680000	-259000
Variable expenses	464000	306000	158000
Contribution margin	475000	374000	-101000
Fixed expenses:
Depreciation	69400	69400	0
Liability insurance	44200	28400	15800
Program administrators’ salaries	115600	79100	36500
General administrative overhead	187800	187800	0
Total fixed expenses	417000	364700	52300
Net operating income (loss)	58000	9300	-48700
Financial (disadvantage) (48700)
1b
No, the housekeeping program should not be discontinued
2a
	Total	Home nursing	Meals on Wheels	House Keeping
Sales	939000	270000	410000	259000
Variable expenses	464000	115000	191000	158000
Contribution margin	475000	155000	219000	101000
Traceable fixed expenses:
Depreciation	69400	8300	40500	20600
Liability insurance	44200	20500	7900	15800
Program administrators’ salaries	115600	40700	38400	36500
Total traceable fixed expenses	229200	69500	86800	72900
Program segment margins	245800	85500	132200	28100
General administrative overhead	187800
Net operating income (loss)	58000
2b
Yes, a segmented income statement would be more useful