Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2449810 • 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. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform tests ordered by their physicians. The Meals On Wheels program delivers a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:
Total
Home Nursing
Meals On Wheels
House
keeping
Revenues
$
934,000
$
269,000
$
407,000
$
258,000
Variable expenses
466,000
116,000
194,000
156,000
Contribution margin
468,000
153,000
213,000
102,000
Fixed expenses:
Depreciation
69,600
8,400
40,800
20,400
Liability insurance
43,500
20,800
7,200
15,500
Program administrators’ salaries
114,500
40,400
38,800
35,300
General administrative overhead*
186,800
53,800
81,400
51,600
Total fixed expenses
414,400
123,400
168,200
122,800
Net operating income (loss)
$
53,600
$
29,600
$
44,800
$
(20,800)
*Allocated on the basis of program revenues.
The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $53,600 last year to be too small. (Last year’s results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability 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. Depreciation charges assume zero salvage value. 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:
1a.
What is the impact on net operating income by discontinuing housekeeping program?
Total if house-
Difference: Net Operating
Current Total
Keeping is Dropped
Income increase or decrease
Revenues
Variable expense
Contribution Margin
Fixed Expenses
Depreciation
Liability Insurance
Program administrators salaries
General administrative overhead
total fixed expense
Net operating income (loss)
1b.
Should the housekeeping program be discontinued?
Yes or no
2a.
Prepare a segmented income statement.
Home
Meals On
House
Totals
Nursing
Wheels
Keeping
Revenues
Variable expense
Contribution Margin
Traceable fixed expenses:
Fixed Expenses
Depreciation
Liability Insurance
Program administrators salaries
total traceable fixed expense
Program segment margins
General administrative overhead
Net operating income (loss)
2b.
Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?
Yes or No
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. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform tests ordered by their physicians. The Meals On Wheels program delivers a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:
Explanation / Answer
1a)
1b) Should the housekeeping program be discontinued?
Yes
2a) Prepare a segmented income statement.
2b) Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?
Yes
Total if house- Difference: Net Operating Current Total Keeping is Dropped Income increase or decrease Revenues 934000 676000 -258000 Variable expense 466000 310000 156000 Contribution Margin 468000 366000 -102000 Fixed Expenses Depreciation 69,600 69600 0 Liability Insurance 43,500 28000 15,500 Program administrators salaries 114,500 79200 35,300 General administrative overhead 186,800 186800 0 total fixed expense 414,400 363600 50,800 Net operating income (loss) 53,600 2400 -51,200Related Questions
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