Cumberland County Senior Services is a non-profit organization devoted to provid

Question

Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their own homes within the Cumberland County area. Three services are provided for seniors home nursing, Meals on Wheels, and housekeeping. In the home nursing program, nurses visit ors on a regular basis to check on their general health and to perform tests ordered by their physicians. The Meals on Wheels program delivers a hot meal once a day to each senior enrolled in t housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow: seni The Home Meals on Total 598,300 146,600 257,500 194,200 472,700 162,800 218,500 91,400 75,220 9,52042,850 22,850 Nursing Wheels keeping $1,071,000 $309,400 $476,000 $285,600 Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead 214,200 61,880 95, 49,030 22,850 8,900 17,.280 127,350 44,750 40,850 41,750 overhead" 214.200 61,880 95,200 57,120 Total fixed expenses 465,800 139,000 187,800 139,000 Operating income (loss) 6,900 23,800 30,700 (47,600) Allocated on the basis of program revenues. Judith Ewa, is concened about the organization's finances and considers the operating income of $6,900 last year to be razor-thin. (Last year's tive of what would be expected its financial reserves at a more rapid rate in The head administrator of years and are r results were very similar to the results for p in the future.) She feels that the order to prepare for the next i information about the financial advisability of discontinuing the tion should be After seeing the above report, Ewa asked for more be donated to a The tion in the h

Explanation / Answer

Solution 1a:

Decrease in net operating income by $9,520 if housekeeping program is discontinued.

Solution 1b:

As there is decrease in net operating income, therefore houskeeping program should not be discontinued.

Solution 2:

Yes segmanted income statement will be useful to management in assessing the long run financial viability of various services, as under segmanted income statement, directly traceble cost will be allocated to segment and common cost will be deducted as a whole from total income of all segmants.

Computation of Change in operating income if housekeeping program is discontinued Particualrs Housekeeping Program Continued Housekeeping Program Discontinued Change in Operating Income Revenues $1,071,000.00 $785,400.00 -$285,600.00 Variable Expenses $598,300.00 $404,100.00 -$194,200.00 Contribution Margin $472,700.00 $381,300.00 -$91,400.00 Fixed Expenses: Depreciation $75,220.00 $52,370.00 -$22,850.00 Liability Insurance $49,030.00 $31,750.00 -$17,280.00 Program Adminstrator Salary $127,350.00 $85,600.00 -$41,750.00 General administrative overhead $214,200.00 $214,200.00 $0.00 Opearting Income $6,900.00 -$2,620.00 -$9,520.00

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