Problem 12-19 Dropping or Retaining a Segment [LO12-2] Jackson County Senior Services is a nonprofit

Problem 12-19 Dropping or Retaining a Segment [LO12-2]

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-
Revenues $ 933,000 $ 266,000 $ 407,000 $ 260,000
Variable expenses 471,000 114,000 199,000 158,000
Contribution margin 462,000 152,000 208,000 102,000
Fixed expenses:
Depreciation 69,600 8,500 40,400 20,700
Liability insurance 43,800 20,600 7,300 15,900
Program administrators’ salaries 114,300 40,900 38,200 35,200
General administrative overhead* 186,600 53,200 81,400 52,000
Total fixed expenses 414,300 123,200 167,300 123,800
Net operating income (loss) $ 47,700 $ 28,800 $ 40,700 $ (21,800)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, Judith Miyama, considers last year’s net operating income of $47,700 to be unsatisfactory; therefore, she is considering the possibility of 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.


1. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program?

2. Prepare a properly formatted segmented income statement.

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