Orange County Senior Services I a nonprofit organization devoted to providing essential services to seniors who live in their homes within the Orange County area. Three services are provided for seniors: home 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.	$900,000	$260,000	$400,000	$240,000
Variable expenses...	490,000	120,000	210,000	160,000
Contribution margin...	410,000	140,000	190,000	80,000
Fixed expenses:
Depreciation.....	68,000	8,000	40,000	20,000
Liability insurance..	42,000	20,000	7,000	15,000
Program administrators salaries	115,000	40,000	38,000	37,000
General administrative overhead*.	180,000	52,000	80,000	48,000
Total fixed expenses	405,000	120,000	165,000	120,000
Net operating income (loss).	$ 5,000	$ 20,000	25,000	$(40,000)
*Allocated on the basis of program revenue

The head administrator of Orange County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $5,000 las 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:

1. Should the housekeeping program be discontinued? Explain. Show computations to support your answer.