Problem 12-19 Dropping or Retaining a Segment [LO12-2] JacksonCounty Senior Services is a nonprofit organization devoted toproviding essential services to seniors who live in their own homeswithin the Jackson County area. Three services are provided forseniors—home nursing, Meals On Wheels, and housekeeping. Data onrevenue and expenses for the past year follow: Total Home NursingMeals On Wheels House- keeping Revenues $ 922,000 $ 269,000 $402,000 $ 251,000 Variable expenses 471,000 116,000 203,000 152,000Contribution margin 451,000 153,000 199,000 99,000 Fixed expenses:Depreciation 69,400 8,500 40,400 20,500 Liability insurance 42,70020,200 7,200 15,300 Program administrators’ salaries 114,500 40,60038,100 35,800 General administrative overhead* 184,400 53,80080,400 50,200 Total fixed expenses 411,000 123,100 166,100 121,800Net operating income (loss) $ 40,000 $ 29,900 $ 32,900 $ (22,800)*Allocated on the basis of program revenues. The head administratorof Jackson County Senior Services, Judith Miyama, considers lastyear’s net operating income of $40,000 to be unsatisfactory;therefore, she is considering the possibility of discontinuing thehousekeeping program. The depreciation in housekeeping is for asmall van that is used to carry the housekeepers and theirequipment from job to job. If the program were discontinued, thevan would be donated to a charitable organization. None of thegeneral administrative overhead would be avoided if thehousekeeping program were dropped, but the liability insurance andthe salary of the program administrator would be avoided. Required:1-a. What is the financial advantage (disadvantage) ofdiscontinuing the Housekeeping program? 1-b. Should theHousekeeping program be discontinued? 2-a. Prepare a properlyformatted segmented income statement. 2-b. Would a segmented incomestatement format be more useful to management in assessing thelong-run financial viability of the various services?
