EXERCISE 122 Dropping or Retaining a Segment [L02] Cumberland County Senior Services is a non-profit organization devoted to providing essen- tial 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 deliv- ers 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: Home Meals on Total Nursing Wheels Housekeeping Revenues .............................. $000,000 $250000 $400000 $240000 1larialale expenses ...................... 490,000 120,000 210,000 150,000 Contribution margin. . .. .. .. .. .. .. .. .. . 410.000 140.000 190000 00000 Fixed expenses Depreciation ........................... 68.000 8.000 40000 20000 liability insuranoe ...................... 42,000 20.000 0100 15,000 Program administrators' salaries ....... 115,000 40.000 33.000 37.000 General administrative overhead\". .. .. . 130.000 52.000 80,000 45,000 total fixed expenses ................... 405000 120000 165000 120000 0peratlng income {loss} ................ 5 5,000 5 20.000 5 25,000 ${40,000] *Aliocated on me basis of program revenues The head administrator of Cumberland County Senior Services. ludith Ewa. is concerned about the organization's nances and considers the operating income of $5.000 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what WWW. tex-cetera. C0111 552 Chapter 12 Relevant Costs for Decision Making would be expected in the future.) She feels that the organization should be building its nancial 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 nancial 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. Ifthe 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 pro- gram 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 sup- port your answer. 2. Recast the above data in a format that would be more useful to management in assessing the long-run nancial viability of the various services