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	$	918,000	$	262,000	$	403,000	$	253,000
Variable expenses		471,000		115,000		198,000		158,000
Contribution margin		447,000		147,000		205,000		95,000
Fixed expenses:
Depreciation		69,800		8,600		40,400		20,800
Liability insurance		43,200		20,300		7,400		15,500
Program administrators’ salaries		114,600		40,800		38,800		35,000
General administrative overhead*		183,600		52,400		80,600		50,600
Total fixed expenses		411,200		122,100		167,200		121,900
Net operating income (loss)	$	35,800	$	24,900	$	37,800	$	(26,900)

*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 $35,800 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? 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 Question 2 Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 42,000 Rets per year. Costs associated with this level of production and sales are given below:    Unit Total   Direct materials $ 20 $ 840,000   Direct labor 10 420,000   Variable manufacturing overhead 3 126,000   Fixed manufacturing overhead 7 294,000   Variable selling expense 2 84,000   Fixed selling expense 6 252,000   Total cost $ 48 $ 2,016,000     The Rets normally sell for $53 each. Fixed manufacturing overhead is constant at $294,000 per year within the range of 35,000 through 42,000 Rets per year.    Required: 1. Assume that due to a recession, Polaski Company expects to sell only 35,000 Rets through regular channels next year. A large retail chain has offered to purchase 7,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 7,000 units. This machine would cost $14,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted. Net profit by 2. Refer to the original data. Assume again that Polaski Company expects to sell only 35,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 7,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?    Net profit: by: 3. Assume the same situation as that described in (2) above, except that the company expects to sell 42,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 7,000 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what they would be if the 7,000 Rets were sold through regular channels?

Netprofit    by

Answer 1

Solution of one independent Question:-

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