Please see the attached file.
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. 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 $ 900,000 $ 260,000 $ 400,000 $ 240,000
Variable expenses 490,000 120,000 210,000 160,000
Contribution margin 410,000 140,000 190,000 80,000
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
Total fixed expenses 405,000 120,000 165,000 120,000
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 $5,000 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps discontinuing the housekeeping program.
The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zero salvage value. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.
(a) What is the amount of the change in net income if the housekeeping unit is dropped? (Input the amount as positive value. Omit the "$" sign in your response.)
The solution explains how to determine the impact on net operating income of dropping a segment
Important information about Dropping or Retaining a Segment
Please see attached file.
Boyle's Home Center, a retailing company, has two departments, Bath and Kitchen. The company's most recent monthly contribution format income statement follows:
Total Bath Kitchen
Sales $ 5,000,000 $ 1,000,000 $ 4,000,000
Variable expenses 1,900,000 300,000 1,600,000
Contribution margin 3,100,000 700,000 2,400,000
Fixed expenses 2,700,000 900,000 1,800,000
Net operating income (loss) $ 400,000 $ (200,000 ) $ 600,000
A study indicates that $370,000 of the fixed expenses being charged to the Bath Department are sunk costs or allocated costs that will continue even if the Bath Department is dropped. In addition, the elimination of the Bath Department would result in a 10% decrease in the sales of the Kitchen Department.
If the Bath Department is dropped, what will be the effect on the net operating income of the company as a whole? (Input the amount as positive value. Omit the "$" sign in your response.)
in overall net operating income