Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2534355 • 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: Total Home Nursing Meals On Wheels House- keeping Revenues $ 917,000 $ 262,000 $ 402,000 $ 253,000 Variable expenses 465,000 117,000 192,000 156,000 Contribution margin 452,000 145,000 210,000 97,000 Fixed expenses: Depreciation 70,400 9,000 40,600 20,800 Liability insurance 44,200 20,600 7,700 15,900 Program administrators’ salaries 116,000 40,900 38,600 36,500 General administrative overhead* 183,400 52,400 80,400 50,600 Total fixed expenses 414,000 122,900 167,300 123,800 Net operating income (loss) $ 38,000 $ 22,100 $ 42,700 $ (26,800) *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 $38,000 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?
Explanation / Answer
Answer:
1-a. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?
With
House Keeping
Without
House Keeping
Revenues
253,000
0
Variable expenses
156,000
0
Contribution margin
97,000
0
Fixed expenses:
0
0
Depreciation
20,800
20,800
Liability insurance
15,900
0
Program administrators’ salaries
36,500
0
General administrative overhead*
50,600
50,600
Total fixed expenses
123,800
71,400
Net operating income (loss)
-26,800
-71,400
Financial Disadvantage = 44600 (71400-26800)
1-b. Should the Housekeeping program be discontinued?.
No
Housekeeping program should notbe discontinued
___________________________________________________________-
2-a. Prepare a properly formatted segmented income statement.
Total
Home Nursing
Meals On Wheels
House-
keeping
Revenues
917,000
262,000
402000
253,000
Variable expenses
465,000
117,000
192000
156,000
Contribution margin
452,000
145,000
210,000
97,000
Tracable Fixed expenses:
Depreciation
70,400
9,000
40600
20,800
Liability insurance
44,200
20,600
7700
15,900
Program administrators’ salaries
116,000
40,900
38600
36,500
Total Tracable Fixed expenses:
230,600
70,500
86,900
73,200
Segment margin
221,400
74,500
123,100
23,800
General administrative overhead*
183,400
Net operating income (loss)
38,000
2-b. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services?
Answer:
Yes
A segmented income statement format be more useful to management in assessing the long-run financial viability of the various services
With
House Keeping
Without
House Keeping
Revenues
253,000
0
Variable expenses
156,000
0
Contribution margin
97,000
0
Fixed expenses:
0
0
Depreciation
20,800
20,800
Liability insurance
15,900
0
Program administrators’ salaries
36,500
0
General administrative overhead*
50,600
50,600
Total fixed expenses
123,800
71,400
Net operating income (loss)
-26,800
-71,400
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