Problem $11-19($Algo$)$ Dropping or Retaining a Segment $[$LO$11-2]$

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:

Total Home Nursing Meals On Wheels House$-$keeping

Revenues $ $934,000$ $ $270,000$ $ $408,000$ $ $256,000$

Variable expenses $480,000118,000205,000157,000$

Contribution margin $454,000152,000203,00099,000$

Fixed expenses:

Depreciation $70,0008,60040,40021,000$

Liability insurance $43,50020,3008,00015,200$

Program administrators$$ salaries $114,70040,20038,90035,600$

General administrative overhead$*186,80054,00081,60051,200$

Total fixed expenses $415,000123,100168,900123,000$

Net operating income $($loss$)$ $ $39,000$ $ $28,900$ $ $34,100$ $ $(24,000)$

$*$Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, considers last year$$s net operating income of $$39,000$ to be unsatisfactory; therefore, she is considering the possibility 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. 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 financial advantage $($disadvantage$)$ of discontinuing the Housekeeping program?

$1-$b$.$ Based on the financial advantage $($disadvantage$)$ of discontinuing the Housekeeping program calculated in requirement Req $1$A$,$ should the Housekeeping program be discontinued?

$2-$a$.$ Prepare a properly formatted segmented income statement.

$2-$b$.$ Would a segmented income statement format be more useful to management in assessing the long$-$run financial viability of the various services?