Problem 10-19A Dropping or Retaining a Segment [LO10-2] 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 Home Meals On House- Total Nursing Wheels keeping 925,000 267,000 405,000 S 253,000 474,000 116,000 207,000 151.000 Variable expenses Contribution margin Fixed expenses: 451,000 151,000 198,000 102,000 40,800 20.800 16,000 Depreciation Liability insurance Program administrators' salaries 114,300 40,600 38,100 35,600 General administrative overhead 185,000 53,400 81,000 50,600 70,300 44,200 20,500 8,700 7,700 Total fixed expenses 413.800 23,200 167,600 123,000 $ 37,200 27,800 $ 30,400 S (21,000) Net operating income (loss) 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 $37,200 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: -a. What is the impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.) Difference: Net Operating Income Increase or (Decrease) Total If Current Total Housekeeping Is Dropped 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. Meals On Wheels House keeping ome Totals Nursin 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-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