What is the impact on net operating income by discontinuing housekeeping program?

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January 7, 2019
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January 7, 2019
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:
TotalHome NursingMeals On WheelsHouse
keeping
Revenues$900,000$260,000$400,000$240,000
Variable expenses490,000120,000210,000160,000








Contribution margin410,000140,000190,00080,000








Fixed expenses:
Depreciation68,0008,00040,00020,000
Liability insurance42,00020,0007,00015,000
Program administrators’ salaries115,00040,00038,00037,000
General administrative overhead*180,00052,00080,00048,000








Total fixed expenses405,000120,000165,000120,000








Net operating 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 $5,000 last year to be too small. (Last year’s results were very similar to the results for previous years and are
representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more
rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about
the financial advisability of discontinuing the housekeeping program.
The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program
were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zero salvage value. None of the general
administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program
administrator would be avoided.
Required:
1a.What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as a
positive value. Omit the “$” sign in your response.)
(Click to select)DecreaseIncrease in net operating income by$
1b.Should the housekeeping program be discontinued?
Yes
No
2.Would a segmented income statement format be more useful to management in assessing the long-run financial viability of the various services.
Yes
No
 

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