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: Total Home Nursing Meals On Wheels House- keeping Revenues $ 922,000 $ 266,000 $ 403,000 $ 253,000 Variable expenses 470,000 117,000 201,000 152,000 Contribution margin 452,000 149,000 202,000 101,000 Fixed expenses: Depreciation 69,700 8,800 40,400 20,500 Liability insurance 43,600 20,500 7,200 15,900 Program administrators’ salaries 116,100 40,800 38,600 36,700 General administrative overhead* 184,400 53,200 80,600 50,600 Total fixed expenses 413,800 123,300 166,800 123,700 Net operating income (loss) $ 38,200 $ 25,700 $ 35,200 $ (22,700) *Allocated on the basis of program revenues.
he head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization’s finances and considers the net operating income of $38,200 last year to be razor-thin. (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 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. 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:
a. What is the impact on net operating income by discontinuing housekeeping program?
b. Prepare a segmented income statement.