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 seniors-home 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 $926,000 $267,000 $405,000 $254,000 474,000 118,000 200,000 156,000 Contribution margin 452,000 149,000 205,000 98,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead 69,600 44,100 116,000 8,600 20,500 40.800 40,400 7.900 20,600 15,700 36,600 38,600 185,200 53.400 81,000 50.800 Total fixed expenses 414,900 123,300 167,900 123,700 Net operating income (loss) $ 37,100 $ 25,700 $ 37,100 $ (25,700) *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 $37,100 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 "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 $37,100 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? Difference: Net Total If Operating Housekeeping Income Increase Is Dropped or (Decrease) Current Total Revenues Variable expenses Contribution margin Fixed expenses Depreciation Liability insurance Required: 1-a. What is the impact on net operating income by discontinuing housekeeping program? Difference: Net Total IF 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 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 Moals 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) 2-6. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services. Yes No
