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 $ 930,000 $ 267,000 $ 405,000 $ 258,000 Variable expenses 474,000 119,000 198,000 157,000 Contribution margin 456,000 148,000 207,000 101,000 Fixed expenses: Depreciation 69,100 8,300 40,600 20,200 Liability insurance 44,100 20,900 7,800 15,400 Program administrators’ salaries 114,600 40,200 38,400 36,000 General administrative overhead* 186,000 53,400 81,000 51,600 Total fixed expenses 413,800 122,800 167,800 123,200 Net operating income (loss) $ 42,200 $ 25,200 $ 39,200 $ (22,200) *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 $42,200 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. 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?
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 | $ | 930,000 | $ | 267,000 | $ | 405,000 | $ | 258,000 |
| Variable expenses | 474,000 | 119,000 | 198,000 | 157,000 | ||||
| Contribution margin | 456,000 | 148,000 | 207,000 | 101,000 | ||||
| Fixed expenses: | ||||||||
| 69,100 | 8,300 | 40,600 | 20,200 | |||||
| Liability insurance | 44,100 | 20,900 | 7,800 | 15,400 | ||||
| Program administrators’ salaries | 114,600 | 40,200 | 38,400 | 36,000 | ||||
| General administrative |
186,000 | 53,400 | 81,000 | 51,600 | ||||
| Total fixed expenses | 413,800 | 122,800 | 167,800 | 123,200 | ||||
| Net operating income (loss) | $ | 42,200 | $ | 25,200 | $ | 39,200 | $ | (22,200) |
*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 $42,200 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. 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?
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