Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2534403 • 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 $46,000 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?
Total Home Nursing Meals On Wheels House-keeping Revenues $ 926,000 $ 267,000 $ 400,000 $ 259,000 Variable expenses 466,000 120,000 193,000 153,000 Contribution margin 460,000 147,000 207,000 106,000 Fixed expenses: Depreciation 70,200 8,900 40,700 20,600 Liability insurance 43,600 20,300 8,000 15,300 Program administrators’ salaries 115,000 40,800 38,700 35,500 General administrative overhead* 185,200 53,400 80,000 51,800 Total fixed expenses 414,000 123,400 167,400 123,200 Net operating income (loss) $ 46,000 $ 23,600 $ 39,600 $ (17,200)
Explanation / Answer
Answer 1
Financial advantage (disadvantage) of discontinuing the Housekeeping program:
Answer 2
Since there is net financial disadvantage of discontinuing housekeeping program, it should not be discontinued.
Answer 3
Segmented Income Statement
Answer 4
Since the segmented income statement format takes into account segment specific fixed cost that are directly traceale, it would be more useful to management in assessing the long-run financial viability of the various services
Loss of Contribution Margin (1,06,000) Savings in: Liability Insurance 20,600 Program administrators’ salaries 35,500 Net Financial advantage / (disadvantage) (49,900)Related Questions
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