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	$	921,000	$	262,000	$	401,000	$	258,000
Variable expenses		455,000		110,000		194,000		151,000
Contribution margin		466,000		152,000		207,000		107,000
Fixed expenses:
Depreciation		69,200		8,500		40,200		20,500
Liability insurance		42,700		20,300		7,300		15,100
Program administrators’ salaries		114,200		40,000		38,500		35,700
General administrative overhead*		184,200		52,400		80,200		51,600
Total fixed expenses		410,300		121,200		166,200		122,900
Net operating income (loss)	$	55,700	$	30,800	$	40,800	$	(15,900)

*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 $55,700 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?

Req 1A

Req 1B

Req 2A

Req 2B

What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

Should the Housekeeping program be discontinued?

Yes No 2A Req 2B Prepare a properly formatted segmented income statement. Total Home Nursing Meals On Wheels House-keeping Revenues Variable expenses Contribution margin 0 0 0 0 Traceable fixed expenses: Depreciation Liability insurance Program administrators’ salaries Total traceable fixed expenses 0 0 0 0 Program segment margins 0 $0 $0 $0 General administrative overhead Net operating income (loss) 0

Req 2B

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

Answer to Question No. - 1(a)
Impact of discontinuing Housekeeping Program
Decrease in Contribution Margin		-107000
Saving in costs
Liability Insurance	15100
Program administrators’ salaries	35700	50800
Net Impact on Total Income		-56200
Answer to Question No. - (1b)
The net operating income of the company will be decreased by $56,200 if it discontinues the housekeeping program.
Hence, the company shouldn't discontinue Housekeeping program. Answer to Question No. - (2A) Particulars Home Nursing Meals On Wheels House-keeping Total Revenues 2,62,000 4,01,000 2,58,000 9,21,000 Variable expenses 1,10,000 1,94,000 1,51,000 4,55,000 Contribution margin 1,52,000 2,07,000 1,07,000 4,66,000 Traceable fixed expenses: Depreciation 8,500 40,200 20,500 69,200 Liability insurance 20,300 7,300 15,100 42,700 Program administrators’ salaries 40,000 38,500 35,700 1,14,200 Total traceable fixed expenses 68,800 86,000 71,300 2,26,100 Program segment margins 83,200 1,21,000 35,700 2,39,900 General administrative overhead 1,84,200 Net operating income (loss) 55,700 Answer to Question No. - (2B) Yes, the segmented income statement would be more useful to management in assessing the long-run financial viability of the various services.