1-b. Should the housekeeping program be discontinued? Yes 2-a. Prepare a segmented income statement. Home Nursing Meals On Wheels House keeping Totals Revenues Variable expenses Contribution margin Traceable fixed expenses: Depreciation Liability insurance Program administrators' salaries Total traceable fixed expenses Program segment margins General administrative overhead Net operating income (loss) 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 Home Meals On House- Total Nursing Wheels keeping $ 930,000 $ 263,000 $ 409,000 $ 258,000 485,000 118,000 210,000 157,000 Revenues Variable expenses Contribution margin 445,000 145,000 199,000 101,000 Fixed expenses: Depreciation 70,400 Liability insurance 43,800 Program administrators' salaries 115,500 General administrative overhead* 186,000 9,000 21,000 40,900 52,600 40,500 7,500 38,300 81,800 20,900 15,300 36,300 51,600 Total fixed expenses 415,700 123,500 168,100 124,100 Net operating income (loss) $ 29,300 $ 21,500 $ 30,900 $ (23,100) *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 $29,300 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.) Total If Difference: Net Operating Income Increase or (Decrease) Housekeeping Is Dropped Current Total Revenues : 0 0 Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative Overhead Total fixed expenses Net operating income (loss) I D
