978-1-259-57854-0 managerial accounting for managers 4th edition P7-19

PROBLEM 719 Dropping or Retaining a Segment [LO 72]Jackson County Senior Services is a nonprofit organization devoted to providing essential ser-vices 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. Data on revenue and expenses for the past year follow

Total HomeNursing Meals OnWheels House keeping Revenues........................$900,000/$260,000 $400,000 $240,000

Variable expenses ........... 490,000 120,000 210,000 60,000

Contribution margin......... . 410,000 140,000 190,000 80,000

Fixed expenses:

Depreciation ...................68,000 8,000 40,000 20,000

Liability insurance............42,000 20,000 7,000 15,000

Program administratorssalaries115,000, 40,000 38,000 37,000

General administrative 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 razor-thin. (Last years results were very similar to the results for previous years and are represen-tative 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. Should the Housekeeping program be discontinued? Explain. Show computations to support your answer.

2. Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services.