PROBLEM 7-19 Dropping or Retaining a Segment [LO 7-2 Jackson County Senior Servi

Question

PROBLEM 7-19 Dropping or Retaining a Segment [LO 7-2 Jackson County Senior Services is a nonprofit organization devoted to providing essential ser- vices 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: Home Meals On House- Total Nursing Wheels keegn $900,000 $260,000 $400,000 $240,000 60,000 140,000 0,000 80,000 490,000 120,000 Variable expenses. . .. 210,000 190,000 Contribution margin. .10,000 Fixed expenses: 40,000 7,000 38,000 80,000 68,000 42,000 8,000 20,000 115000 40,000 20,000 15,000 37,000 48,000 Depreciation Program administrators salaries.... General administrative overhead... 180,000 52,000 Total fixed expenses Net operating income (loss).. Allocated on the basis of program revenues 405,000 120,000165,000120,000 $ 5,000 20,000 25,000 $(40,000)

Explanation / Answer

1. Differential Analysis: Whether to continue or discontinue housekeeping.

Increase

( Decrease) in Operating Income

The housekeeping program should not be discontinued, as that would result in a decrease in operating income by $ 28,000.

2.Jackson County Senior Servies

Segmented Income Statement:

Continue Housekeeping Discontinue Housekeeping

Increase

( Decrease) in Operating Income

Total Revenues 900,000 660,000 (240,000) Variable Expenses 490,000 330,000 160,000 Contribution Margin 410,000 330,000 (80,000) Fixed Expenses Depreciation 68,000 68,000 0 Liability Insurance 42,000 27,000 15,000 Program Administrator Salary 115,000 78,000 37,000 Geneeral Administrative Overhead 180,000 180,000 0 Total Fixed Expenses 405,000 353,000 52,000 Operating Income ( Loss) 5,000 (23,000) (28,000)

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