Jackson County Senior Services is a nonprofit organization devoted to providing

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: Home Meals On House- Nursing Wheels keeping 928,000 265,000 403,000 260,000 159,000 101,000 Total Revenues Variable expenses 483, 000 116,000 208, 000 195,000 Contribution margin 445,000 149,000 Fixed expenses: Depreciation Liability insurance Program administrators salaries General administrative overhead* 20,700 15,500 37,000 52,000 125, 200 $ 29,600 26,300 27,500 (24,200) 69,200 44,100 116,500 185,600 415,400 8,300 20,800 40,600 53,000 122,700 40,200 7,800 38,900 80,600 167,500 Total fixed expenses Net operating income (loss) 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 $29,600 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?

Explanation / Answer

1. If the housekeeping Program is discontinued, the financial benefits would be:

Earlier the net income from housekeeping department was: (24200)

Now after discontinuation, the general administrative overhead of (52000) would still be there.

So, the net disadvantage would be of (24200-52000) = (27800)

2. No, it should not be discontinued, as it will result in additional 27800 loss

3.    Total   Home nursing   Meals on wheels
Revenue   668000   265000   403000
Variable expenses   324000   116000   208000
Contribution margin    344000   149000   195000
Fixed expense          
Depreciation    48500   8300   40200
Liability Expenses    28600   20800   7800
Program admin salary    79500   40600   38900
General administrative overhead   185600   73628.74251   111971.2575
Total fixed Expense   342200   143328.7425   198871.2575
Net operating income (loss)   1800   5671.257485   -3871.257485

4. Yes, it is helpful since it gives the clear picture of management decisions and how it would impact the overall financial health of the company.

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