Exercise 12-2 Dropping or Retaining a Segment [LO2] 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 seniors-home 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: Home Nursing $ 267,800 124,200 Total $927,000 507,100 Meals on Wheels $ 412,000 217,500 House- keeping $ 247,200 165, 400 Revenues Variable expenses Contribution margin 419,900 143,600 194,500 81,800 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* 69,140 43, 110 116,950 185,400 8,240 20,450 40,750 53,560 40, 450 7,300 38,450 82,400 20, 450 15, 360 37,750 49,440 Total fixed expenses 414,600 123,000 168,600 123,000 Operating income (loss) $ 5,300 $ 20,600 $ 25,900 $(41,200) *Allocated on the basis of program revenues. The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances and considers the operating income of $5,300 last year to be razor-thin. (Last year's 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. in net operating income by 1-b. Should the housekeeping program be discontinued? Yes O 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 O No