Cumberland County Senior Services is a non-profit organization devoted to providing essential services to seniors who live in theirown homes within the Cumberland County area. Three services are provided for seniors-home nursing, Meals on Wheels, andhousekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to performtests ordered by their physicians. The Meals on Wheels program delivers a hot meal once a day to each senior enrolled in theprogram. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses forthe past year follow:RevenuesVariable expensesContribution marginFixed expenses:DepreciationLiability insuranceProgram administrators' salariesGeneral administrative overhead*Total fixed expensesOperating income (loss)Total$1,026,000569,800456,200$73,32047,180124, 100205, 200449,8006,400HomeNursing$296,400139, 600156,8009,12022,10043,50059, 280134,000$ 22,800Meals onWheels$456,000245,000211,00042,1008,40040,10091,200181,800$ 29,200House-keeping$273,600185,20088,40022,10016,68040,50054, 720134,000$(45,600)*Allocated on the basis of program revenues.The head administrator of Cumberland County Senior Services, Judith Ewa, is concerned about the organization's finances andconsiders the operating income of $6,400 last year to be razor-thin. (Last year's results were very similar to the results for previousyears and are representative of what would be expected in the future.) She feels that the organization should be building its financialreserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ewa asked for moreinformation 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 jobto job. If the program were discontinued, the van would be donated to a charitable organization. Depreciation charges assume zerosalvage value. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but theliability 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.1-b. Should the housekeeping program be discontinued?YesNoin net operating income by2. Would a segmented income statement format be more useful to management in assessing the long-run financial viability of thevarious services?YesNo

Segmented income statement helps in showing the sales and specific costs associated with different…

Answered: Required: 1-a. Compute the change in…

Required: 1-a. Compute the change in net operating income for the company as a whole if housekeeping program be discontinued.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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)
Total
$1,026,000
569,800
456,200
$
73,320
47,180
124, 100
205, 200
449,800
6,400
Home
Nursing
$296,400
139, 600
156,800
9,120
22,100
43,500
59, 280
134,000
$ 22,800
Meals on
Wheels
$456,000
245,000
211,000
42,100
8,400
40,100
91,200
181,800
$ 29,200
House-
keeping
$273,600
185,200
88,400
22,100
16,680
40,500
54, 720
134,000
$(45,600)
*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 $6,400 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.
1-b. Should the housekeeping program be discontinued?
Yes
No
in net operating income by
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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