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 $ 921,000 $ 265,000 $ 401,000 $ 255,000 462,000 115,000 190,000 157,000 Revenues Variable expenses Contribution margin 459,000 150,000 211,000 98,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* 69,100 44,300 113,800 184,200 8,400 20,900 40,400 53,000 40,400 7,500 38,100 80,200 20,300 15,900 35,300 51,000 Total fixed expenses 411,400 122,700 166,200 122,500 Net operating income (loss) $ 47,600 $ 27,300 $ 44,800 $ (24,500) *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 $47,600 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 reserve 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 the 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? (Decrease should be indicated by a minus sign.) Total If Difference: Net Operating Income Increase or (Decrease) Current Total Housekeeping Is Dropped Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses Net operating income (loss) $ 0 $ 0 $ 1-b. Should the housekeeping program be discontinued? Yes No 2-a. Prepare a segmented income statement. Home Nursing Meals On Wheels House keeping Totals Revenues Variable expenses Contribution margin Traceable fixed expenses: Depreciation Liability insurance Program administrators' salaries Total traceable fixed expenses LoL Program segment margins General administrative overhead Net operating income (loss) 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 O No
