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?

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What is the financial advantage $($disadvantage$)$ of discontinuing the Housekeeping program?Sunshine Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within Southern California. 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 $ $924,000$ $ $266,000$ $ $406,000$ $ $252,000$

Variable expenses $464,000116,000193,000155,000$

Contribution margin $460,000150,000213,00097,000$

Fixed expenses:

Depreciation $70,0008,80040,90020,300$

Liability insurance $43,60020,1007,60015,900$

Program administrators$$ salaries $115,50040,80038,00036,700$

General administrative overhead$*184,80053,20081,20050,400$

Total fixed expenses $413,900122,900167,700123,300$

Net operating income $($loss$)$ $ $46,100$ $ $27,100$ $ $45,300$ $ $(26,300)$

$*$Allocated on the basis of program revenues.

The head administrator of Sunshine Services, Patsy Pearsall, considers last year$$s net operating income of $$46,100$ 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?