What is the impact on net operating income by discontinuing housekeeping program?.
| 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 seniorsAf?cAc‚¬”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 |
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| Revenues | $ | 900,000 | $ | 260,000 | $ | 400,000 | $ | 240,000 |
| Variable expenses | 490,000 | 120,000 | 210,000 | 160,000 | ||||
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| Contribution margin | 410,000 | 140,000 | 190,000 | 80,000 | ||||
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| 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 | ||||
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| Total fixed expenses | 405,000 | 120,000 | 165,000 | 120,000 | ||||
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| Net operating income (loss) | $ | 5,000 | $ | 20,000 | $ | 25,000 | $ | (40,000) |
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| *Allocated on the basis of program revenues. |
| The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organizations finances and considers the net operating income of $5,000 last year to be too small. (Last years results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of discontinuing the housekeeping program. |
| The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zero salvage value. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. |
| Required: |
| 1a. | What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as a positive value. Omit the “$” sign in your response.) |
| (Click to select)DecreaseIncrease in net operating income by | $ |
| 1b. | Should the housekeeping program be discontinued? | ||||
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| 2. | Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services. | ||||
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What is the impact on net operating income by discontinuing housekeeping program?
