1.) compute the change in net operating income for the company as a whole if housekeeping program be discontinued. Options - decrease/ increase in net operating income by $_______2.) should the housekeeping program be discontinued? (Yeso) 3.) would a segmented income statement format be more useful to management in assessing the long run financial viability of the various services? (Yeso)
umberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their wn homes within the Cumberland County area. Three services are provided for seniors-home nursing, Meals on Wheels, and ousekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform ests ordered by their physicians. The Meals on Wheels program delivers a hot meal once a day to each senior enrolled in the rogram. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for he past year follow: Home Meals on House- Total Nursing Wheels keeping Revenues $1, 035, 000 $299, 000 $460, 000 $276, 000 Variable expenses 575, 500 141, 000 247 , 500 187, 000 Contribution margin 459, 500 158 , 000 212, 500 89, 000 Fixed expenses : Depreciation 73, 700 9 , 200 42, 250 22, 250 Liability insurance 47,550 22, 250 8,500 16, 800 Program administrators' salaries 124, 750 43, 750 40, 250 40, 750 General administrative overhead* 207, 000 59 , 800 92, 000 55, 200 Total fixed expenses 453, 000 135, 000 183,000 135, 000 Operating income (loss) $ 6,500 $ 23, 000 $ 29,500 $ (46, 000) Allocated on the basis of program revenues. The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances and considers the operating income of $6,500 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, Ewa asked for more information about the financial advisability of discontinuing the housekeeping program. The depreciation in the housekeeping category 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. Depreciation charges assume zero salvage value. 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. Compute the change in net operating income for the company as a whole if housekeeping program be discontinued
