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	$	930,000	$	270,000	$	406,000	$	254,000
Variable expenses		463,000		117,000		191,000		155,000
Contribution margin		467,000		153,000		215,000		99,000
Fixed expenses:
Depreciation		69,400		8,400		40,900		20,100
Liability insurance		43,500		20,500		7,300		15,700
Program administrators’ salaries		114,500		40,300		38,300		35,900
General administrative overhead*		186,000		54,000		81,200		50,800
Total fixed expenses		413,400		123,200		167,700		122,500
Net operating income (loss)	$	53,600	$	29,800	$	47,300	$	(23,500)

*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 $53,600 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