Question

In: Accounting

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who...

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?

Solutions

Expert Solution

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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