Reference no: EM13325331

Jackson County Senior Services

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. In the home nursing program, nurses visit seniors 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 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	924,000	$	265,000	$	402,000	$	257,000
Variable expenses	470,000		115,000		196,000		159,000
Contribution margin	454,000		150,000		206,000		98,000
Fixed expenses:
Depreciation	69,600		8,600		40,600		20,400
Liability insurance	43,400		20,700		7,600		15,100
Program administrators' salaries	115,000		40,900		38,900		35,200
General administrative overhead*	184,800		53,000		80,400		51,400
Total fixed expenses	412,800		123,200		167,500		122,100
Net operating income (loss)	41,200	$	26,800	$	38,500	$	-24,100

The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization's finances and considers the net operating income of $41,200 last year to be too small.

(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 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:

What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as a positive value.

Should the housekeeping program be discontinued?

Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.