Question 3

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 seniorshome 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	$ 925,000	$ 268,000	$ 406,000	$ 251,000
Variable expenses	483,000	116,000	209,000	158,000
Contribution margin	442,000	152,000	197,000	93,000
Fixed expenses:
Depreciation	69,200	8,200	40,200	20,800
Liability insurance	43,400	20,800	7,400	15,200
Program administrators salaries	114,600	40,500	38,300	35,800
General administrative overhead*	185,000	53,600	81,200	50,200
Total fixed expenses	412,200	123,100	167,100	122,000
Net operating income (loss)	$ 29,800	$ 28,900	$ 29,900	$ (29,000)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, considers last years net operating income of $29,800 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 1A, 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?

What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

Prepare a properly formatted segmented income statement.

	Total	Home Nursing	Meals On Wheels	House-keeping
Revenues
Variable expenses
Contribution margin	0	0	0	0
Traceable fixed expenses:
Depreciation
Liability insurance
Program administrators salaries
Total traceable fixed expenses	0	0	0	0
Program segment margins	0	$0	$0	$0
General administrative overhead
Net operating income (loss)	0

Req 1B