roblem 12-19 Dropping or Retaining a Segment [LO12-2] Jackson County Senior Serv
ID: 2564428 • Letter: R
Question
roblem 12-19 Dropping or Retaining a Segment [LO12-2]
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 $43,800 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?
Total Home Nursing Meals On Wheels House-keeping Revenues $ 923,000 $ 266,000 $ 401,000 $ 256,000 Variable expenses 465,000 114,000 200,000 151,000 Contribution margin 458,000 152,000 201,000 105,000 Fixed expenses: Depreciation 69,800 9,000 40,400 20,400 Liability insurance 44,800 21,000 7,900 15,900 Program administrators’ salaries 115,000 40,400 38,000 36,600 General administrative overhead* 184,600 53,200 80,200 51,200 Total fixed expenses 414,200 123,600 166,500 124,100 Net operating income (loss) $ 43,800 $ 28,400 $ 34,500 $ (19,100)
Explanation / Answer
Total Total without House- keeping Net income change Revenues 923000 667000 -256000 Variable expenses 465000 314000 151000 Contribution margin 458000 353000 -105000 Fixed expenses: Depreciation 69800 69800 0 Liability insurance 44800 28900 15900 Program administrators’ salaries 115000 78400 36600 General administrative overhead 184600 184600 0 Total fixed expenses 414200 361700 52500 Net operating income (loss) 43800 -8700 -52500 1b No, Housekeeping program should not be discontinued 2a Total Home Nursing Meals On Wheels House- keeping Revenues 923000 266000 401000 256000 Variable expenses 465000 114000 200000 151000 Contribution margin 458000 152000 201000 105000 Fixed expenses: Depreciation 69800 9000 40400 20400 Liability insurance 44800 21000 7900 15900 Program administrators’ salaries 115000 40400 38000 36600 Total traceable fixed expenses 229600 70400 86300 72900 Segment margin 228400 81600 114700 32100 General administrative overhead 184600 Net operating income (loss) 43800 2b Yes, a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.