Problem 10-19A Dropping or Retaining a Segment [LO10-2] Jackson County Senior Se

Question

Problem 10-19A Dropping or Retaining a Segment [LO10-2]

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:

     The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $38,000 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps 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.

What is the impact on net operating income by discontinuing housekeeping program? (Decreases should be indicated by a minus sign.)

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:

Explanation / Answer

Current house income total keeping increase or Dropped (decrease) Revenues 929,000 671000 -258,000 Variable expenses 477,000 319000 158,000 Conribution margin 452,000 352000 -100,000 Fixed expenses: Depreciation 69,800 69,800 0 liability insurance 43,600 27,700 15,900 program administrator's salaries 114,800 79,300 35,500 General administrative overhead 185,800 185,800 0 total fixed expense 414,000 362,600 51,400 Net operating income(loss) 38,000 -10,600 -48,600 1-b) No 2-a) Segmented income statement home Meals on house Totals nursing wheels keeping Revenues 263,000 408,000 258,000 929,000 Variable expenses 112,000 207,000 158,000 477,000 Conribution margin 151,000 201,000 100,000 452,000 Traceable fixed expenses Depreciation 8,500 40,800 20,500 69,800 liability insurance 20,200 7,500 15,900 43,600 program administrator's salaries 40,700 38,600 35,500 114,800 total traceable fixed expenses 69,400 86,900 71,900 228,200 program segment margins 81,600 114,100 28,100 223,800 General administrative OH 185,800 net operating income(loss) 38,000 2-b) Yes

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