Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2496695 • 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:
The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $40,700 last year to be razor-thin. (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 perhaps 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.
What is the impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.)
Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.
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:
Explanation / Answer
The housekeeping program should not be discontinued as it is generating the possitive segment margin.
To give the management a clear picture of financial viability of each organisation's program the general administrative overhead should not be allocated. It is a common cost that should be deducted from the total segment margin.
Yes it would be viable give the for management to access the program segment margin in the long run.
Total House- keeping Dropped Difference Revenues $ 927,000 $ 674,000 $ (253,000) Variable expenses $ 473,000 $ 320,000 $ 153,000 Contribution margin $ 454,000 $ 354,000 $ (100,000) Fixed expenses: Depreciation $ 69,400 $ 69,400 $ - Liability insurance $ 44,000 $ 28,300 $ 15,700 Program administrators’ salaries $ 114,500 $ 78,600 $ 35,900 General administrative overhead* $ 185,400 $ 185,400 $ - Total fixed expenses $ 413,300 $ 122,700 $ 51,600 Net operating income (loss) $ 40,700 $ (22,700) $ (48,400) Contibution margin lost if the housekeeping is disocnitunued $ (100,000) Liability insurance $ 15,700 Program administrators’ salaries $ 35,900 Total traceable fixed cost $ 51,600 Decrease in the total companys operating profit $ (48,400)Related Questions
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