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. Data on revenue and expenses for the past year follow: Home Meals On House- Total Nursing Wheels keeping $ 931,000 $264,000 $409,000 $258,000 483,000 117,000 207,000 159,000 Revenues Variable expenses Contribution margin 448,000 147,000 202,000 99,000 Fixed expenses: Depreciation Liability insurance Program administrators salaries General administrative overhead* 70,000 43,400 115.000 8,500 20,600 40.800 40,800 7,300 38,700 20,700 15,500 35,500 51,600 186,200 52,80081,800 Total fixed expenses 414,600 122,700 168,600 123,300 Net operating income (loss) $ 33,400 $ 24,300 $ 33,400 $ (24,300) *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 $33,400 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, Ms. Miyama asked for more information about the financial advisability of perhaps 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. 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. What is the impact on net operating income by discontinuing housekeeping program? Total If Difference: Net Operating Housekeeping Income Increase Is Dropped or (Decrease) Current Total $ Revenues Variable expenses Contribution margin 258,000 159,000 99,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries 20,700 15,500 35,500 51,600 123,300 General administrative overhead Total fixed expenses 1-b. Should the housekeeping program be discontinued? Yes 2-a. Prepare a segmented income statement. Home Nursing Meals On Wheels House keeping Totals I 0 0 0 0 Revenues Variable expenses Contribution margin Traceable fixed expenses: Depreciation Liability insurance Program administrators' salaries Total traceable fixed expenses Program segment margins General administrative overhead Net operating income (loss) 0 0 0 0 0 0 0 0 $ $ $ 2-b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services. Yes
