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	$	918,000		$	265,200		$	408,000		$	244,800
Variable expenses		501,400			122,800			215,000			163,600
Contribution margin		416,600			142,400			193,000			81,200
Fixed expenses:
Depreciation		68,760			8,160			40,300			20,300
Liability insurance		42,740			20,300			7,200			15,240
Program administrators salaries		116,300			40,500			38,300			37,500
General administrative overhead*		183,600			53,040			81,600			48,960
Total fixed expenses		411,400			122,000			167,400			122,000
Operating income (loss)	$	5,200		$	20,400		$	25,600		$	(40,800	)

*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 $5,200 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?

	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?

	Yes
	No