Chapter 13, Problem 19P

PROBLEM 12-19 Dropping or Retaining a Segment LO12-2

Jackson Country Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson Country area. Three services are provided for seniors—home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow:

Revenues Variable expenses	Total $900,000 490,000	Home Nursing $260,000 120,000	Meals On Wheels $400,000 210,000	House keeping $240,000 160,000
Contribution margin	410,000	140,000	190,000	80,000
Fixed expenses:
Depreciation	68,000	8,000	40,000	20,000
Liability insurance	42,000	20,000	7,000	15,000
Program administrators’ salaries ....	115,000	40,000	38,000	37,000
General administrative overhead* ...	180,000	52,000	80,000	48,000
Total fixed expenses	405,000	120,000	165,000	120,000
Net operating income (loss)	$ 5,000	$ 20,000	$ 25,000	$ (40,000)

*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 $5,000 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 carry⁷ 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. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program? Should the Housekeeping program be discontinued¹ Explain.
2. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run financial viability of its various services.