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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

$902,900  

$260,000    

$401,800    

$241,100     

  Variable expenses

486,300  

118,700    

208,200    

159,400     

  Contribution margin

416,600  

141,300    

193,600    

81,700     

  Fixed expenses:

 

 

 

 

     Depreciation

65,000  

6,900    

39,600    

18,500     

     Liability insurance

39,800  

19,800    

6,200    

13,800     

     Program administrators’
salaries

113,800  

39,900    

37,800    

36,100     

     General administrative
overhead*

176,000  

50,200    

78,800    

47,000     

  Total fixed expenses

394,600  

116,800    

162,400    

115,400     

  Net operating income (loss)

$22,000  

$24,500    

$31,200    

$(33,700)    

 

*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
$22,000 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. 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. Omit the “$” sign in your response.)

 
 

(b)

Should the housekeeping program be discontinued?

 

 

 

 

 

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. (Enter all amounts as positive numbers
except for Net Operating Income which should be indicated by a
minus sign if the result is a loss. Omit the “$” sign in your
response.)

 

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