Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2430032 • 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 $39,100 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 $ 923,000 $ 261,000 $ 405,000 $ 257,000 Variable expenses 472,000 111,000 208,000 153,000 Contribution margin 451,000 150,000 197,000 104,000 Fixed expenses: Depreciation 69,100 8,200 40,700 20,200 Liability insurance 43,600 20,200 7,900 15,500 Program administrators’ salaries 114,600 40,500 38,700 35,400 General administrative overhead* 184,600 52,200 81,000 51,400 Total fixed expenses 411,900 121,100 168,300 122,500 Net operating income (loss) $ 39,100 $ 28,900 $ 28,700 $ (18,500)
Explanation / Answer
Required 1-a
Contribution margin lost if the housekeeping program is dropped................................................................(104,000)
Fixed costs that can be avoided:
Liability insurance......................................................15,500
Program administrators salary..................................35,400
Total avoidable fixed costs..................…................. 50900
Decrease in net operating income for the organization as a whole...... (53,100)
the financial advantage (disadvantage) of discontinuing the Housekeeping program is $(53,100)
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 923000 261000 405000 257000 Variable expenses 472000 111000 208000 153000 Contribution margin 451000 150000 197000 104000 Traceable fixed expenses : Depreciation 61900 8200 40700 20200 Liability insurance 43600 20200 7900 15500 Program administrators' salaries 114600 40500 38700 35400 Total Traceable fixed expenses 227300 68900 87300 71100 Program segment margins 223700 81100 109700 32900 General administrative overhead 184600 Net operating income (loss) 39100Related Questions
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