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	$	923,000	$	262,000	$	409,000	$	252,000
Variable expenses		469,000		114,000		196,000		159,000
Contribution margin		454,000		148,000		213,000		93,000
Fixed expenses:
Depreciation		69,400		8,400		40,800		20,200
Liability insurance		43,900		20,600		7,900		15,400
Program administrators’ salaries		116,000		40,900		38,300		36,800
General administrative overhead*		184,600		52,400		81,800		50,400
Total fixed expenses		413,900		122,300		168,800		122,800
Net operating income (loss)	$	40,100	$	25,700	$	44,200	$	(29,800)

*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 $40,100 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. Is this a financial advantage or disadvantage? What is the dollar amount in discontinuing the Housekeeping program?

1-b. Should the Housekeeping program be discontinued? (Yes/No)

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? (Yes/No)

Answer 1

1a
	Current Total	Total If house keeping is Dropped	Difference: Net Operating Income
Sales	923000	671000	-252000
Variable expenses	469000	310000	159000
Contribution margin	454000	361000	-93000
Fixed expenses:
Depreciation	69400	69400	0
Liability insurance	43900	28500	15400
Program administrators’ salaries	116000	79200	36800
General administrative overhead	184600	184600	0
Total fixed expenses	413900	361700	52200
Net operating income (loss)	40100	-700	-40800
Financial (disadvantage) $(40800)
1b
No, the housekeeping program should not be discontinued
2a
	Total	Home nursing	Meals on Wheels	House Keeping
Sales	923000	262000	409000	252000
Variable expenses	469000	114000	196000	159000
Contribution margin	454000	148000	213000	93000
Traceable fixed expenses:
Depreciation	69400	8400	40800	20200
Liability insurance	43900	20600	7900	15400
Program administrators’ salaries	116000	40900	38300	36800
Total traceable fixed expenses	229300	69900	87000	72400
Program segment margins	224700	78100	126000	20600
General administrative overhead	184600
Net operating income (loss)	40100
2b
Yes, a segmented income statement would be more useful