Jackson County Senior Services is a nonprofit organization devoted to providing
ID: 2541145 • 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:
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 Hone Meals On House- TotslNursing Wheels keeping $ 926,800 278,3 402,0a0254,983 Variable expenses Contribution marein Fixed expensesi 78,200 20,983 15,983 35,989 40,300 Deprectation Liability insurance Progran administrators solories General administrative overhead 20,703 48,669 115,808 185,288 38,500 Total fixed expenses et operating income loss) $ 26,5e 25,709 3,3ee (29,500 Allocated on the basis of program revenues. The head administrator of Jackson County Senior Services, Judith Miyama, considers last years net operating income of $26,500 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 fromjob 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 p 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 financlal viability of the rogram be disc ontinued? various services?Explanation / Answer
Answer 1a.
Financial advantage of discountinuing the Housekeeping program would include discontinuance of fixed costs while the disadvantage would incude fregoing of the contribution from operations. However we should be concerned about the net financial advantage/disadvatage here, which is computed below:
Total financial loss from discontinuing House keeping would be $71,700, that is it will have a financial impact of $42,200 when compared continuing v/s discontinuing.
P.S. Depreciation is still considered as expense here since the vehicle is donated and it is assumed that the depreciation expense will still be charged in the books. Even if we consider that depreciation expense is not forming a part of cost, we would still have net financial impact of $21,300
Answer 1b.
Housekeeping program should not be discontinued since we will have a negative financial impact of discontinuing v/s continuing.
Answer 2a.
Answer 2b.
A segmented income statement is prepared to give the management and owners a clear view of the operations of the business and with a clear division of the income from continuing or discontinuing operations. With a clear division of discontinuing operation, the management and owners will know which part of the income/(loss) will be foregone in future.
Continued Discontinued Particulars House keeping House keeping Revenues 254000 0 Variable Expenses 160000 0 Contribution Margin 94000 0 Fixed Expenses Depreciation 20900 20900 Liability insurance 15900 0 Program admin salaries 35900 0 General admin overhead 50800 50800 Total Fixed Expenses 123500 71700 Net operating income/loss -29500 -71700 -42200Related Questions
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