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 $927,000 $269,000 $406,000 $252,000 470,000 115,000 196,000 159,000 Contribution margin 457,000 154,000 210,000 93,000 Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* 70,100 44,100 114,600 8,900 21,000 40,300 40,500 7,700 38,500 20,700 15,400 35,800 185,400 53,800 81,200 50,400 414,200 Total fixed expenses 124,000 167,900 122,300 Net operating income (loss) $ 42,800 $ 30,000 $ 42,100 $ (29,300) *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 $42,800 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. ed Required: 1-a. What is the impact on net operating income by discontinuing housekeeping program? Total If Current Total Housekeeping Is Dropped Difference: Net Operating Income Increase or (Decrease) (252,000) 159,000 (93,000) Revenues $ $ 927,000 470,000 457,000 675,000 311,000 364,000 70,100 Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead Total fixed expenses Net operating income (loss) 70,100 28,700 44,100 15,400 114,600 78,800 35,800 185,400 185,400 0 414,200 363,000 51,200 $ 42,800 $ 1,000 $ (41,800) 1-b. Should the housekeeping program be discontinued? Yes No d 2-a. Prepare a segmented income statement. Home Meals On House Totals Nursing Wheels keeping Revenues 927,000 $ 269,000 $ 406,000 $ 252,000 Variable expenses 470,000 115,000 196,000 159,000 Contribution margin 457,000 154,000 210,000 93,000 Traceable fixed expenses: Depreciation 70,100 8,900 40,500 20,700 Liability insurance 44,100 21,000 7,700 15,400 Program administrators' 114,600 40,300 38,500 35,800 salaries Total traceable fixed expenses 228,800 70,200 86,700 71,900 Program segment margins $ 228,200 $ 83,800 $ 123,300 21,100 General administrative overhead 185,400 Net operating income (loss) $ (164,300) *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. 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 No
