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	$	265,000	$	405,000	$	253,000
Variable expenses		465,000		116,000		190,000		159,000
Contribution margin		458,000		149,000		215,000		94,000
Fixed expenses:
Depreciation		70,100		8,400		40,900		20,800
Liability insurance		43,700		20,600		7,300		15,800
Program administrators’ salaries		115,500		40,500		38,100		36,900
General administrative overhead*		184,600		53,000		81,000		50,600
Total fixed expenses		413,900		122,500		167,300		124,100
Net operating income (loss)	$	44,100	$	26,500	$	47,700	$	(30,100)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $44,100 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps 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 impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.)

          

1-b.	Should the housekeeping program be discontinued?
	Yes No

  

2-a.	Prepare a 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 No

Answer 1