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	$	928,000	$	266,000	$	409,000	$	253,000
Variable expenses		473,000		120,000		199,000		154,000
Contribution margin		455,000		146,000		210,000		99,000
Fixed expenses:
Depreciation		69,900		8,200		40,800		20,900
Liability insurance		43,700		20,700		7,200		15,800
Program administrators’ salaries		115,300		40,800		38,900		35,600
General administrative overhead*		185,600		53,200		81,800		50,600
Total fixed expenses		414,500		122,900		168,700		122,900
Net operating income (loss)	$	40,500	$	23,100	$	41,300	$	(23,900)

*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 $40,500 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