Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2536911 • 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 $43,500 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 $ 922,000 $ 270,000 $ 401,000 $ 251,000 Variable expenses 465,000 119,000 196,000 150,000 Contribution margin 457,000 151,000 205,000 101,000 Fixed expenses: Depreciation 70,300 8,800 40,700 20,800 Liability insurance 43,600 20,200 7,900 15,500 Program administrators’ salaries 115,200 40,100 38,600 36,500 General administrative overhead* 184,400 54,000 80,200 50,200 Total fixed expenses 413,500 123,100 167,400 123,000 Net operating income (loss) $ 43,500 $ 27,900 $ 37,600 $ (22,000) Prob 12-19 00 p homes witrin the Jcison County ares Three services ae provided for seniors-home nusing MessOn Whes, and roussheeping ane experses the past yra on the has compeete ths queiny enteaina your anSmers n tne tabs below.
Explanation / Answer
1-a.
Note: Depreciation on the van is a sunk cost and will have to be written off when the vans are donated.
1-b. No.
The Housekeeping program should not be discontinued since it would result in a decrease in net operating income of $49000.
2-a.
2-b. Yes.
A segmented income statement is more useful since it shows the margins generated by each segment contributing towards the common fixed expenses of the organization.
Current Total TOTAL Difference: Financial Housekeeping is dropped Advantage or (Decrease) Revenues 922000 671000 -251000 Variable expenses 465000 315000 150000 Contribution margin 457000 356000 -101000 Fixed expenses: Depreciation 70300 70300 0 Liability insurance 43600 28100 15500 Program administrators' salaries 115200 78700 36500 General administrative overhead 184400 184400 0 Total fixed expenses 413500 361500 52000 Net operating income (loss) 43500 -5500 -49000Related Questions
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