Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2405115 • Letter: J
Question
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:
*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 $34,400 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?
Total Home Nursing Meals On Wheels House-keeping Revenues $ 928,000 $ 268,000 $ 408,000 $ 252,000 Variable expenses 480,000 119,000 207,000 154,000 Contribution margin 448,000 149,000 201,000 98,000 Fixed expenses: Depreciation 70,600 9,000 40,900 20,700 Liability insurance 43,200 20,100 7,800 15,300 Program administrators’ salaries 114,200 40,900 38,200 35,100 General administrative overhead* 185,600 53,600 81,600 50,400 Total fixed expenses 413,600 123,600 168,500 121,500 Net operating income (loss) $ 34,400 $ 25,400 $ 32,500 $ (23,500)
Explanation / Answer
Required 1-a
Contribution margin lost if the housekeeping program is dropped................................................................(98,000)
Fixed costs that can be avoided:
Liability insurance......................................................15,300
Program administrators salary..................................35,100
Total avoidable fixed costs..................…................. 50400
Decrease in net operating income for the organization as a whole...... (47600)
Required 1-b
No, the housekeeping program should not be discontinued. It is actually generating a positive program segment margin and is, of course, providing a valuable service to seniors.
Required 2-a
Required 2 - b
Yes, to give the administrator of the entire organization a clearer picture of the financial viability of each of the organization’s programs, the general administrative overhead should not be allocated. It is a common cost that should be deducted from the total program segment margin.
Total home nursing meals on wheels house keeping Revenues 928000 268000 408000 252000 Variable expenses 480000 119000 207000 154000 Contribution margin 448000 149000 201000 98000 Traceable fixed expenses : Depreciation 70600 9000 40900 20700 Liability insurance 43200 20100 7800 15300 Program administrators' salaries 114200 40900 38200 35100 Total Traceable fixed expenses 228000 70000 86900 71100 Program segment margins 220000 79000 114100 26900 General administrative overhead 185600 Net operating income (loss) 34400Related Questions
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