Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their own homes within the Cumberland 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: Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries Total $927,000 507,100 Home Nursing $267,800 Meals on Wheels House- keeping $412,000 $247,200 124,200 217,500 165,400 419,900 143,600 194,500 81,800 69,140 8,240 40,450 20,450 43,110 20,450 7,300 15,360 116,950 40,750 38,450 37,750 General administrative overhead* 185,400 53,560 82,400 49,440 Total fixed expenses Operating income (loss) 414,600 123,000 168,600 $ 5,300 $ 20,600 $ 25,900 123,000 $(41,200) "Allocated on the basis of program revenues. The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances and considers the operating Income of $5,300 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, Ewa asked for more Information about the financial advisability of discontinuing the housekeeping program. The depreciation in the housekeeping category 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. Required: 1-a. Compute the change in net operating Income for the company as a whole If housekeeping program be discontinued. Decrease in net operating income by

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Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their
own homes within the Cumberland 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:
Revenues
Variable expenses
Contribution margin
Fixed expenses:
Depreciation
Liability insurance
Program administrators' salaries
General administrative overhead*
Total fixed expenses
Operating income (loss)
*Allocated on the basis of program revenues.
Total
$927,000
507,100
Home
Nursing
$267,800
Meals on
Wheels
House-
keeping
$412,000
$247,200
124,200
217,500
165,400
419,900
143,600
194,500
81,800
69,140
8,240
40,450
20,450
43,110
20,450
7,300
15,360
116,950
40,750
38,450
37,750
185,400
53,560
82,400
49,440
414,600
123,000
168,600
$ 5,300
$ 20,600
$ 25,900
123,000
$(41,200)
The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances and
considers the operating income of $5,300 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, Ewa asked for more
Information about the financial advisability of discontinuing the housekeeping program.
The depreciation in the housekeeping category 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.
Required:
1-a. Compute the change in net operating Income for the company as a whole If housekeeping program be discontinued.
Decrease
in net operating income by
Transcribed Image Text:Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in their own homes within the Cumberland 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: Revenues Variable expenses Contribution margin Fixed expenses: Depreciation Liability insurance Program administrators' salaries General administrative overhead* Total fixed expenses Operating income (loss) *Allocated on the basis of program revenues. Total $927,000 507,100 Home Nursing $267,800 Meals on Wheels House- keeping $412,000 $247,200 124,200 217,500 165,400 419,900 143,600 194,500 81,800 69,140 8,240 40,450 20,450 43,110 20,450 7,300 15,360 116,950 40,750 38,450 37,750 185,400 53,560 82,400 49,440 414,600 123,000 168,600 $ 5,300 $ 20,600 $ 25,900 123,000 $(41,200) The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances and considers the operating income of $5,300 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, Ewa asked for more Information about the financial advisability of discontinuing the housekeeping program. The depreciation in the housekeeping category 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. Required: 1-a. Compute the change in net operating Income for the company as a whole If housekeeping program be discontinued. Decrease in net operating income by
1-b. Should the housekeeping program be discontinued?
Yes
No
2. Would a segmented Income statement format be more useful to management in assessing the long-run financial viability of the
various services?
Yes
○ No
Transcribed Image Text:1-b. Should the housekeeping program be discontinued? Yes No 2. Would a segmented Income statement format be more useful to management in assessing the long-run financial viability of the various services? Yes ○ No
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