in direct materials be sold. This change will have to some savings in direct materials costs due to less waste. EXERCISE 12-2 Dropping or Retaining a Segment (LO2) Jackson County Senior Services is a nonprofit organization devoted to providing essential ser 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 vices to seniors who live in their own homes within the Jackson County area. Three services are 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 $900,000 490,000 410.000 $260,000 120.000 140.000 $400,000 210,000 190,000 $240.000 160.000 80,000 Revenues Variable expenses Contribution margin. Fixed expenses: Depreciation.. Liability insurance Program administrators' salaries. General administrative overhead Total fixed expenses Net operating income (loss). 68.000 42.000 115,000 180,000 405,000 $ 5,000 8,000 20.000 40,000 52.000 120,000 $ 20,000 40,000 20,000 7,000 15,000 38,000 37,000 80,000 48,000 165,000 120.000 $ 25,000 $(40,000) *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 $5,000 last year to be too small. (Last year's results were very similar to the results for previous years and are represen- tative 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. Required: 1. Should the housekeeping program be discontinued? Explain. Show computations to support your answer. 2. Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services