Jackson County Senior Services

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 $ 922,000 $ 268,000 $ 405,000
$ 249,000

Variable expenses 487,000 124,000 205,000 158,000
Contribution margin 435,000 144,000 200,000 91,000
Fixed expenses:

Depreciation 69,400 8,900 40,400 20,100
Liability insurance 43,200 20,100 7,600 15,500
Program administrators' salaries 117,400 40,900 39,000
37,500

General administrative overhead* 182,100 52,800 80,500
48,800

Total fixed expenses 412,100 122,700 167,500 121,900
Net operating income (loss) $ 22,900 $ 21,300 $ 32,500 $ ( 30,900)
*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 $22,900 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.

Requirement 1:
(a) What is the amount of the change in net income if the housekeeping unit is dropped? (Input the amount as positive value.)

Decrease in net operating income = ________________

Requirement 2:
Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services. (Net operating losses should be shown with a minus preceding the amount.)

Home Nursing Meals on
Wheels House-Keeping Total
Revenue $ $ $ $
Variable expenses
Contribution margin
Traceable fixed expenses:
Depreciation
Liability insurance
Program administrator salaries
Total traceable fixed expenses
Program segment margins
General administrative overhead
Net operating income (loss) $