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 S 264,000 $ 409,000 $ 260,000 468,000 114,000 203,000 151,000 Contribution margin 465.000 150,000 206,000 109,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead 69,500 44,000 116,000 186,600 8,500 20,900 40,300 52,800 40,300 7.800 38,900 81,800 20,700 15,300 36,800 52,000 Total fixed expenses 416,100 122,500 168,800 124,800 Net operating income (loss) $ 48,900 $ 27,500 $ 37,200 $ (15,800) *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 $48,900 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.) Total If Difference: Net Operating Current Total Housekeeping Income Increase Is Dropped or (Decreaso) Revenues 0 D Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead 0 0 0 Total fixed expenses Net operating income (loss) S 0 $ 0 $ 0 1-b. Should the housekeeping program be discontinued? Yes O No 2-a. Prepare a segmented income statement. Home Nursing Meals On Wheels House keeping Totals 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 $ 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 O No
