For Question 1a, you should fill in the labels "total if house keeping is dropped" and "difference Net Operating Income Increases or (decreases)
Required: 1a. What is the impact on net operating income by discontinuing housekeeping program? Total If House- keeping Is Difference: Net Operating Program. Current Total Dropped Income Increase or (Decrease) Revenues $ 924,000 Variable expenses 466,000 Contribution margin 458,000 Fixed expenses: Depreciation 70,400 Liability insurance 42,800 Program administrators' 114,80 salaries General administrative 184,80 overhead* Total fixed 412,800 expenses Net operating income (loss) $ 45,200 2. Recast the data in a format that would be more useful to management in assessing the long-run financial viability of the various services (segment approach).Exercise 12-2A Dropping or Retaining a Segment [LO2] Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson 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 Meals On House Total Nursing Wheels keeping Revenues $ 924,000 $ 266,000 $ 407,000 $ 251,000 Variable 466,000 114,000 195,000 157,000 expenses Contributio 458,000 152,000 212,000 94,000 n margin Fixed expenses. Depreciati 70,400 9,000 40,800 20,600 on Liability 42,800 20,600 7, 100 15, 100 insurance Program administrato 114,800 40,300 38,400 36, 100 rs' salaries General administrativ 184,800 53,200 81,400 50,200 e overhead Total fixed expenses 412,800 123, 100 167,700 122,000 Net operating income $ 45,200 EA 28,900 $ 44,300 $ (28,000) (loss) *Allocated on the basis of program revenues. The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization's finances and considers the net operating income of $45,200 last year to be too small. (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, Ms. Miyama asked for more information about the financial advisability of 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. 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. 1
