Should the housekeeping program be discontinued

Assignment Help Financial Accounting

Reference no: EM1313030

Should a particular segment be dropped or continued. Provide reasons.,

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 o wheels, and housekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform testes ordered by their physicians. The meals on wheels program deliver a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:

	Total	Home Nursing	Meals on Wheels	House Keeping
Revenues....................................	$900,000	$260,000	$400,000	$240,000
Variable expenses...................	490,000	120,000	210,000	160,000
Contribution margin...............	410,000	140,000	190,000	80,000
Fixed expenses:
Depreciation.........................	68,000	8,000	40,000	20,000
Liability insurance...........................	42,000	20,000	7,000	15,000
Program administrators\' salaries........................	115,000	40,000	38,000	37,000
General administrative overhead*..................	180,000	52,000	80,000	48,000
Total fixed expenses.....................................	405,000	120,000	165,000	120,000
Net operting income (loss)................................	$5,000	$20,000	$25,000	$(40,000)

*Allocated on the basis of program revenues.
The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization's finances and considers the net operating income of $5,000 last year to be razor-thin. (Last year's a 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. Depreciation charges assume zero salvage value. 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. Should the housekeeping program be discontinued? Explain. Show computations to support your answer.
2. Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services.

Reference no: EM1313030

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