Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2536527 • 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 $53,800 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?
Prepare a properly formatted segmented income statement.
Total Home Nursing Meals On Wheels House-keeping Revenues $ 925,000 $ 269,000 $ 404,000 $ 252,000 Variable expenses 457,000 110,000 191,000 156,000 Contribution margin 468,000 159,000 213,000 96,000 Fixed expenses: Depreciation 69,800 9,000 40,600 20,200 Liability insurance 43,600 20,400 7,600 15,600 Program administrators’ salaries 115,800 40,800 38,900 36,100 General administrative overhead* 185,000 53,800 80,800 50,400 Total fixed expenses 414,200 124,000 167,900 122,300 Net operating income (loss) $ 53,800 $ 35,000 $ 45,100 $ (26,300)
Explanation / Answer
Solution 1 (a)
Current Total
Total If House- keeping Is Dropped
Difference: Net Operating
Income Increase or (Decrease)
Revenues
$ 925,000
$ 673,000
(252,000)
Variable expenses
457,000
301,000
156,000
Contribution margin
468,000
372,000
(96,000)
Fixed expenses:
Depreciation
69,800
69,800
0
Liability insurance
43,600
28,000
15,600
Program administrators’ salaries
115,800
79,700
36,100
General administrative overhead*
185,000
185,000
0
Total fixed expenses
414,200
362,500
51,700
Net operating income (loss)
$ 53,800
9,500
$ (44,300)
The financial disadvantage of discontinuing the Housekeeping program is that it will reduce net operating income by $ 44,300.
Solution 1 (b)
No, The Housekeeping program should not be discontinued as it will not be beneficial for the organization, as it will reduce net operating income by $ 44,300.
Note: As per answering guidelines , I am submitting answer for both parts of question 1. For rest of the answers, post questions separately.
Current Total
Total If House- keeping Is Dropped
Difference: Net Operating
Income Increase or (Decrease)
Revenues
$ 925,000
$ 673,000
(252,000)
Variable expenses
457,000
301,000
156,000
Contribution margin
468,000
372,000
(96,000)
Fixed expenses:
Depreciation
69,800
69,800
0
Liability insurance
43,600
28,000
15,600
Program administrators’ salaries
115,800
79,700
36,100
General administrative overhead*
185,000
185,000
0
Total fixed expenses
414,200
362,500
51,700
Net operating income (loss)
$ 53,800
9,500
$ (44,300)
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