ackson County SeniorServices is a nonprofit organization devoted to providing essentialservices to seniors who live in their own homes within the JacksonCounty area. Three services are provided for seniorsâhome nursing,Meals On Wheels, and housekeeping. Data on revenue and expenses forthe past year follow:
Total HomeNursing Meals OnWheels House-
keeping Revenues $ 927,000 $ 265,000 $ 409,000 $ 253,000 Variableexpenses 457,000 112,000 192,000 153,000 Contributionmargin 470,000 153,000 217,000 100,000 Fixedexpenses: Depreciation 69,300 8,900 40,100 20,300 Liabilityinsurance 43,600 20,900 7,300 15,400 Programadministratorsâ salaries 115,500 40,800 38,700 36,000 Generaladministrative overhead* 185,400 53,000 81,800 50,600 Total fixedexpenses 413,800 123,600 167,900 122,300 Net operatingincome (loss) $ 56,200 $ 29,400 $ 49,100 $ (22,300)
*Allocated on the basis of program revenues.
The head administratorof Jackson County Senior Services, Judith Miyama, considers lastyearâs net operating income of $56,200 to be unsatisfactory;therefore, she is considering the possibility of discontinuing thehousekeeping program.
The depreciation inhousekeeping is for a small van that is used to carry thehousekeepers and their equipment from job to job. If the programwere discontinued, the van would be donated to a charitableorganization. None of the general administrative overhead would beavoided if the housekeeping program were dropped, but the liabilityinsurance and the salary of the program administrator would beavoided.
Required:
1-a. What is thefinancial advantage (disadvantage) of discontinuing theHousekeeping program?
1-b. Should theHousekeeping program be discontinued?
2-a. Prepare aproperly formatted segmented income statement.
2-b. Would a segmentedincome statement format be more useful to management in assessingthe long-run financial viability of the various services?
ackson County SeniorServices is a nonprofit organization devoted to providing essentialservices to seniors who live in their own homes within the JacksonCounty area. Three services are provided for seniorsâhome nursing,Meals On Wheels, and housekeeping. Data on revenue and expenses forthe past year follow:
| Total | HomeNursing | Meals OnWheels | House- keeping | |||||
| Revenues | $ | 927,000 | $ | 265,000 | $ | 409,000 | $ | 253,000 |
| Variableexpenses | 457,000 | 112,000 | 192,000 | 153,000 | ||||
| Contributionmargin | 470,000 | 153,000 | 217,000 | 100,000 | ||||
| Fixedexpenses: | ||||||||
| Depreciation | 69,300 | 8,900 | 40,100 | 20,300 | ||||
| Liabilityinsurance | 43,600 | 20,900 | 7,300 | 15,400 | ||||
| Programadministratorsâ salaries | 115,500 | 40,800 | 38,700 | 36,000 | ||||
| Generaladministrative overhead* | 185,400 | 53,000 | 81,800 | 50,600 | ||||
| Total fixedexpenses | 413,800 | 123,600 | 167,900 | 122,300 | ||||
| Net operatingincome (loss) | $ | 56,200 | $ | 29,400 | $ | 49,100 | $ | (22,300) |
*Allocated on the basis of program revenues.
The head administratorof Jackson County Senior Services, Judith Miyama, considers lastyearâs net operating income of $56,200 to be unsatisfactory;therefore, she is considering the possibility of discontinuing thehousekeeping program.
The depreciation inhousekeeping is for a small van that is used to carry thehousekeepers and their equipment from job to job. If the programwere discontinued, the van would be donated to a charitableorganization. None of the general administrative overhead would beavoided if the housekeeping program were dropped, but the liabilityinsurance and the salary of the program administrator would beavoided.
Required:
1-a. What is thefinancial advantage (disadvantage) of discontinuing theHousekeeping program?
1-b. Should theHousekeeping program be discontinued?
2-a. Prepare aproperly formatted segmented income statement.
2-b. Would a segmentedincome statement format be more useful to management in assessingthe long-run financial viability of the various services?
