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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:

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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 seniors—home 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
Programadministrators’ 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 lastyear’s 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?

Jackson County Senior Services is a nonprofit organizationdevoted to providing essential services to seniors who live intheir own homes within the Jackson County area. Three services areprovided for seniors—home nursing, Meals On Wheels, andhousekeeping. Data on revenue and expenses for the past yearfollow:


Total HomeNursing Meals OnWheels House-
keeping
Revenues $ 929,000 $ 268,000 $ 404,000 $ 257,000
Variableexpenses 470,000 117,000 200,000 153,000
Contributionmargin 459,000 151,000 204,000 104,000
Fixed expenses:
Depreciation 69,500 8,300 40,900 20,300
Liability insurance 43,800 20,800 7,700 15,300
Programadministrators’ salaries 115,700 41,000 38,400 36,300
Generaladministrative overhead* 185,800 53,600 80,800 51,400
Total fixedexpenses 414,800 123,700 167,800 123,300
Net operating income(loss) $ 44,200 $ 27,300 $ 36,200 $ (19,300)
*Allocated on the basis ofprogram revenues.


The head administrator of JacksonCounty Senior Services, Judith Miyama, is concerned about theorganization’s finances and considers the net operating income of$44,200 last year to be razor-thin. (Last year's results were verysimilar to the results for previous years and are representative ofwhat would be expected in the future.) She feels that theorganization should be building its financial reserves at a morerapid rate in order to prepare for the next inevitable recession.After seeing the above report, Ms. Miyama asked for moreinformation about the financial advisability of perhapsdiscontinuing the housekeeping program.

The depreciation in housekeepingis for a small van that is used to carry the housekeepers and theirequipment from job to job. If the program were discontinued, thevan would be donated to a charitable organization. None of thegeneral administrative overhead would be avoided if thehousekeeping program were dropped, but the liability insurance andthe salary of the program administrator would be avoided.

Required:
1-a.

What is the impact on net operating income by discontinuinghousekeeping program? (Decreases should be indicated by aminus sign.)

Total If Difference: Net Operating
Current Total Housekeeping Is Dropped Income Increase or (Decrease)
Revenues
Variableexpenses
Contribution margin
Fixedexpenses:
Depreciation
Liabilityinsurance
Programadministrators’ salaries
Generaladministrative overhead
Totalfixed expenses
Net operating income(loss)
1-b. Should thehousekeeping program be discontinued?
Yes

No

2-a.

Prepare a segmented income statement.

Home Nursing Meals On Wheels House keeping Totals
Revenues
Variable expenses
Contribution margin
Traceable fixed expenses:
Depreciation
Liability insurance
Program administrators’salaries
Total traceable fixedexpenses
Program segment margins
General administrativeoverhead
Net operating income(loss)
2-b.

Would a segmented income statement format be more useful tomanagement in assessing the long-run financial viability of thevarious services.
Yes
No

PROBLEM 2-18 Variable and Fixed Costs; Subtleties of Direct and Indirect Costs [L02-1, L02-4] Madison Seniors Care Center is a nonprofit organization that provides a variety of health services to the elderly. The center is organized into a number of departments, one of which is the Meals-On- Wheels program that delivers hot meals to seniors in their homes on a daily basis. Below are listed a number of costs of the center and the Meals-On-Wheels program. example The cost of groceries used in meal preparation. a. The cost of leasing the Meals-On-Wheels van. b. The cost of incidental supplies such as salt, pepper, napkins, and so on. C. The cost of gasoline consumed by the Meals-On-Wheels van. The rent on the facility that houses Madison Seniors Care Center, including the Meals-On-Wheels program. The salary of the part-time manager of the Meals-On-Wheels program. Depreciation on the kitchen equipment used in the Meals-On-Wheels program. 8. The hourly wages of the caregiver who drives the van and delivers the meals. h. The costs of complying with health safety regulations in the kitchen. 1. The costs of mailing letters soliciting donations to the Meals-On-Wheels program. Required: For each cost listed above, indicate whether it is a direct or indirect cost of the Meals-On-Wheels program, whether it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served. Use the form below for your answer. Direct or Indirect Variable or Fixed Cost of Particular with Respect to the Direct or Indirect Seniors Served Number of Seniors Cost of the Meals- by the Meals-on- Served by the Meals- on-Wheels Program Wheels Program on-Wheels Program Direct Indirect Direct Indirect Variable Fixed Item Example Description The cost of groceries used in meal preparation... X

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