Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their own homes within the Cumberland 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	$	999,000		$	288,600		$	444,000		$	266,400
Variable expenses		552,700			135,400			237,500			179,800
Contribution margin		446,300			153,200			206,500			86,600
Fixed expenses:
Depreciation		72,180			8,880			41,650			21,650
Liability insurance		46,070			21,650			8,100			16,320
Program administrators salaries		122,150			42,750			39,650			39,750
General administrative overhead*		199,800			57,720			88,800			53,280
Total fixed expenses		440,200			131,000			178,200			131,000
Operating income (loss)	$	6,100		$	22,200		$	28,300		$	(44,400	)

*Allocated on the basis of program revenues.

The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organizations finances and considers the operating income of $6,100 last year to be razor-thin. (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, 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.

1-b. Should the housekeeping program be discontinued?

multiple choice 1

Yes

No

2. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?

multiple choice 2

Yes

No