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: Revenues Variable expenses Home Meals On House- Total Nursing Wheels keeping $ 933,000 $ 267,000 $ 410,000 $ 256,000 468,000 115,000 194,000 159,000 465,000 152,000 216,000 97,000 Contribution margin Fixed expenses Depreciation Liability insurance Program administrators' salaries General administrative overhead 71,000 43,500 113,600 186,600 9,000 20,500 40,100 53,400 41,000 7,300 38,200 82,000 21,000 15,700 35,300 51,200 414,700 123,000 168,500 123,200 Total fixed expenses Net operating income (loss) $ 50,300 $ 29,000 $ 47,500 $ (26,200) *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 $50,300 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? (Decreases should be indicated by a minus sign.) Difference: Net Total If Operating Housekeeping Income Increase Is Dropped or (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) 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 Program segment margins General administrative overhead Net operating income (loss)
