Question

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 Wheels Home Nursing $ 928,000 $ 268,000 $ 401,000 $ 259,000 119,000 149,000 House- Total keeping Revenues Variable expenses Contribution margin Fixed expenses Depreciation Liability insurance Progran administrators' salaries General administrative overhead Total fixed expenses 478,000 450,000 206,000 195,000 153,000 106,000 70,100 43,200 8,800 20,100 40,100 21,000 15,700 35,100 51,800 123,600 $ 37,300 26,400 28,500 $(17,600) 40,30e 7,400 k 113,800 185,600 412,700 38,600 80,200 53,600 122,600 166,500 Net operating income (loss) t "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 $37,300 to be unsatisfactory, therefore, she is considering the possibility of discontinuing the housekeeping program nces 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? Complete this question by entering your answers in the tabs below. Req 1A Req 18 Req 2A Req 2B What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

Answer 1

The Financial advantage(disadvantage) of discontinuing of the housekeeping program 1-a Contribution lost due to shutdown Less: Fixed Cost that can be avoided Liability insurance Program administrative salary Financial advantage(disadvantage) 106000 15700 35100 -55200 Decrease in Net Operating Income due to discontinuing of housekeeping program 552 Depreciation on Van is a sunk cost 1-b Housekeeping program should not be discontinued Properly Segmented income statement 2-a Particulars Home Nursing Meals on Wheels House Keeping Total 259000 928000 153000 478000 Revenue Variable Expense Contribution Margin Depreciation Liability insurance Program administrative salary Segment Margin General Administrative Expense Net operating profit 268000 401000 119000 206000 106000 450000 149000 195000 40300 21000 8800 70100 7400 15700 43200 20100 35100 113800 40100 38600 34200 222900 80000 108700 185600 37300 2-b Yes, it would help the management in assessing the long run financial viability