Question

Problem 11-19 Dropping or Retaining a Segment (LO11-2] 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: Meals Home On House- Total Nursing Wheels se keeping $900,000 $260,000 $400,000 $240,000 490,000 120,000 210,000 160,000 410,000 140,000 190,000 80,000 Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* Total fixed expenses Net operating income (loss) 68,000 8,000 40,000 20,000 42,000 20,000 7,000 15,000 115,000 40,000 38,000 37,000 180,000 52,000 80,000 48,000 405,000 120,000 165,000 120,000 $ 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, considers last year's net operating income of $5,000 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. Based on the financial advantage (disadvantage) of discontinuing the Housekeeping program calculated in requirement Req 1A, 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? Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2A Req 2B What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

Answer 1

Solution 1a:

C 1 2 Computation of Financial Advantage (Disadvantage) of discontinuing House-keeping Program Financial advantage 3 Continue House- Discontinue Particulars (disadvantage) of discontinuing House-keeping -$240,000 -$160,000 -$80,000 keeping House-keeping $240,000 $160,000 $80,000 $0 Revenues 5 Variable expenses Contribution Margin Fixed Expenses: Depreciation Liability Insuran ce Program administrators' salaries General administrative overhead $0 6 $0 7 $20,000 $20,000 $0 $0 $15,000 -$15,000 -$37,000 10 $37,000 $48,000 $0 11 $48,000 $0 12 13 -$40,000 -$68,000 -$28,000 Net Income 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Sheet449 (2) Sheet91 (2) Sheet158 (13) Sheet95 Sheet II

Financial disadvantage = - $28000

Solution 1b:

No, housekeeping program should not be discontinued.

Solution 2a:

K N 1 2. 3. 4 5 Segmanted Income Statement - Jacks on Country Senior Services Home Nursing Meals on Wheels House-Keeping $400,000 $210,000 $190,000 6 Particulars Total $260,000 $120,000 $900,000 $490,000 $410,000 $240,000 $160,000 $80,000 Sales Variable expenses Contribution margin Traceable Fixed Expenses Depreciation Liability Insurance Program adminis trators' salaries Total Tracable Fixed Expenses 7 8 $140,000 9 10 $40,000 $7,000 $38,000 $85,000 $68,000 $42,000 $115,000 $225,000 $20,000 $15,000 $37,000 $72,000 $8,000 11 $20,000 $40,000 $68,000 12 13 14 15 $185,000 $180,000 $105,000 $8,000 Product Line segment margin (loss) Common fixed expenses $72,000 16 17 18 $5,000 Net Operating Income (Loss) 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 Sheet449 (2) Sheet91 (2) Sheet158 (13) Sheet95 Sheet II MM

Solution 2b:

Yes.