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	$	922,000	$	262,000	$	405,000	$	255,000
Variable expenses		462,000		114,000		194,000		154,000
Contribution margin		460,000		148,000		211,000		101,000
Fixed expenses:
Depreciation		70,200		8,400		40,800		21,000
Liability insurance		43,200		20,600		7,300		15,300
Program administrators’ salaries		114,000		40,200		38,600		35,200
General administrative overhead*		184,400		52,400		81,000		51,000
Total fixed expenses		411,800		121,600		167,700		122,500
Net operating income (loss)	$	48,200	$	26,400	$	43,300	$	(21,500)

*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 $48,200 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

Solution:-

1-a. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program:-

Financial (disadvantage)

$ (50.500)

Explanation:-

1-b. Should the Housekeeping program be discontinued:-

No

Explanation:-

No, Jackson County Senior Services should not discontinue Housekeeping program due to disadvante of $50,500 from discontinue.

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:-

Yes

Explanation:-

Segmented income statement format would be more useful to management in assessing the long-run financial viability of the various services.

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