70.2K

Verified Solution

Link Copied!

Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their own homes within the Cumberland County area. Three services are provided for seniorshome 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	$	1,053,000		$	304,200		$	468,000		$	280,800
Variable expenses		586,900			143,800			252,500			190,600
Contribution margin		466,100			160,400			215,500			90,200
Fixed expenses:
Depreciation		74,460			9,360			42,550			22,550
Liability insurance		48,290			22,550			8,700			17,040
Program administrators salaries		126,050			44,250			40,550			41,250
General administrative overhead*		210,600			60,840			93,600			56,160
Total fixed expenses		459,400			137,000			185,400			137,000
Operating income (loss)	$	6,700		$	23,400		$	30,100		$	(46,800	)

*Allocated on the basis of program revenues.

The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organizations finances and considers the operating income of $6,700 last year to be razor-thin. (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, Ewa asked for more information about the financial advisability of discontinuing the housekeeping program.

The depreciation in the housekeeping category 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:

1-a. Compute the change in net operating income for the company as a whole if housekeeping program be discontinued.

1-b. Should the housekeeping program be discontinued?

multiple choice 1

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?

multiple choice 2

Yes

No

Answer & Explanation Solved by verified expert

See Answer