Question

"925,000" 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- keeping revenues $ 925,000 $ 268,000 $ 404,000 $ 253,000

Answer 1

Answer:

Depreciation on the van is a sunk cost and the van has no salvage value since it would be donated to another organization. The general administrative overhead is allocated and none of it would be avoided if the program were dropped; thus it is not relevant to the decision.

Explanation:

1. To give the administrator of the entire organization a clearer picture of the financial viability of each of the organization’s programs, the general administrative overhead should not be allocated. It is a common cost that should be deducted from the total program segment margin.

                                Total      Home Nursing       Meals on      House

                                                                                          Wheels         -keeping

Revenues                             $932,000     $270,000        $409,000    $253,000

Variable expenses               478,000        119,000          203,000      156,000

Contribution margin             454,000       151,000            206,000      97,000

Traceable fixed expenses:

Depreciation                        69,500          8,700                40,600       20,200

Liability insurance               44,200          21,000                7,500         15,700

Program administrators’    115,100         40,200                38,700       36,200

salaries

Total traceable fixed          228,800        69,900              86,800        72,100

 expenses

Program segment            225,200          81,100                119,200         24,900

margins

General administrative    186,400

overhead

Net operating income (loss)   $38,800

2) No, the housekeeping program should not be discontinued. It is actually generating a positive program segment margin and is, of course, providing a valuable service to seniors. Computations to support this conclusion follow:

Contribution margin lost if the                                                           $(97,000)

housekeeping program is dropped

Fixed costs that can be avoided:

Liability insurance                                       $15,700

Program administrator’s salary                  36,200                                 51,900

Decrease in net operating income                                                     $(45,100)

 for the organization as a whole