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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 seniorshome nursing, Meals On Wheels, and housekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform tests ordered by their physicians. The Meals On Wheels program delivers a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:

		Total		Home Nursing		Meals On Wheels		House keeping
Revenues	$	900,000	$	260,000	$	400,000	$	240,000
Variable expenses		490,000		120,000		210,000		160,000
Contribution margin		410,000		140,000		190,000		80,000
Fixed exp
Depreciation		68,000		8,000		40,000		20,000
Liability insurance		42,000		20,000		7,000		15,000
Program administrators salaries		115,000		40,000		38,000		37,000
General admin overhead*		180,000		52,000		80,000		48,000
Total fixed expenses		405,000		120,000		165,000		120,000
Net operating income (loss)	$	5,000	$	20,000	$	25,000	$	(40,000)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $5,000 last year to be too small. (Last years 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 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. 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:

1a.	What is the impact on net operating income by discontinuing housekeeping program?

		Total If House-	Difference: Net Operating
	Current Total	keeping Is Dropped	Income Increase or (Decrease)
Revenues
Variable expenses
Contribution margin
Fixed expenses:
Depreciation
Liability insurance
Program administrators salaries
General administrative overhead
Total fixed expenses
Net operating income (loss)

1b.	Should the housekeeping program be discontinued? Circle/highlight your answer.
	Yes No

2a.		Prepare a segmented income statement.
				Home	Meals On	House
			Totals	Nursing	Wheels	keeping
	Revenues
	Variable expenses
	Contribution margin
	Traceable fixed expenses:
	Depreciation
	Liability insurance
	Program administrators salaries
	Total fixed expenses
	Program segment margins
	General administrative overhead
	Net operating income (loss)

2b.	Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services. Circle/highlight your answer.
	Yes No

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