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 seniorshome nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow: Home Meals On House- Total Nursing Wheels keeping $ 923,000 $ 268,000 $ 402,000 $ 253,000 474,000 117,000 205,000 152,000 Revenues Variable expenses Contribution margin 449,000 151,000 197,000 101,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* 69,800 43,400 114,000 184,600 9.000 20,400 40,600 53,600 40.300 7,700 38,000 80,400 20.500 15,300 35,400 50,600 Total fixed expenses 411,800 123,600 $ 37,200 $ 27,400 $ 166,400 121,800 30,600 $ (20,800) Net operating income (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 $37,200 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 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 Current Total Housekeeping Income Increase Is Dropped or (Decrease) Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead 0 0 Total fixed expenses Net operating income (loss) % 0 % 0 % 0 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 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) I D 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 No
