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. 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: Total Home Nursing Meals On Wheels House keeping Revenues $ 922,000 $ 261,000 $ 405,000 $ 256,000 Variable expenses 466,000 114,000 193,000 159,000 Contribution margin 456,000 147,000 212,000 97,000 Fixed expenses: Depreciation 69,800 8,800 40,500 20,500 Liability insurance 43,200 20,100 7,200 15,900 Program administrators salaries 116,300 40,900 38,800 36,600 General administrative overhead* 184,400 52,200 81,000 51,200 Total fixed expenses 413,700 122,000 167,500 124,200 Net operating income (loss) $ 42,300 $ 25,000 $ 44,500 $ (27,200) *Allocated on the basis of program revenues. The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $42,300 last year to be too small. (Last years 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.

Required 1a. What is the impact on net operating income by discontinuing housekeeping program? Difference: Total If House- Operating keeping Is Income Increase Droppedor (Decrease) Current Total Revenues Variable expenses Contribution margin Fixed expenses Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses Net operating income (loss) 1b. Should the house keeping program be discontinued? O Yes O No