Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2535006 • 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 $46,600 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 $ 262,000 $ 409,000 $ 255,000 Variable expenses 466,000 113,000 197,000 156,000 Contribution margin 460,000 149,000 212,000 99,000 Fixed expenses: Depreciation 70,200 8,900 40,400 20,900 Liability insurance 43,500 20,200 8,000 15,300 Program administrators’ salaries 114,500 40,700 38,300 35,500 General administrative overhead* 185,200 52,400 81,800 51,000 Total fixed expenses 413,400 122,200 168,500 122,700 Net operating income (loss) $ 46,600 $ 26,800 $ 43,500 $ (23,700)
Explanation / Answer
Solution 1-a:
Solution 1-b:
Housekeeping program should not be discontinued because there will be net finncial disadvantage of $48,200 from discontinuation of Housekeeping Program.
Solution 2-a:
Solution 2-b:
Yes, a segmented income statement format be more useful to management as it analize each division separately and its profitability
Computation of financial advantage (disadvantage) of discontinuing Housekeeping Particulars Continue Housekeeping Discontinue Housekeeping Financial Advantage (Disadvantage) of discontinuing Housekeeping Revenue $255,000.00 $0.00 -$255,000.00 Costs: Varaible Expenses $156,000.00 $0.00 -$156,000.00 Fixed Expenses: Depreciation (Sunk Cost) $0.00 $0.00 $0.00 liability insurance $15,300.00 $0.00 -$15,300.00 Program administrators' salaries $35,500.00 $0.00 -$35,500.00 General Administrative Overhead $51,000.00 $51,000.00 $0.00 Total Expenses $257,800.00 $51,000.00 -$206,800.00 Income / (Loss) -$2,800.00 -$51,000.00 -$48,200.00Related Questions
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