What is the impact on net operating income by discontinuing housekeeping program

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 $ 926,000 $ 267,000 $ 406,000 $ 253,000  
  Variable expenses   471,000   113,000   199,000   159,000  
                   
  Contribution margin   455,000   154,000   207,000   94,000  
                   
  Fixed expenses:                  
    Depreciation   69,000   8,300   40,600   20,100  
    Liability insurance   43,900   20,800   7,600   15,500  
    Program administrators’ salaries   115,300   40,900   38,300   36,100  
    General administrative overhead*   185,200   53,400   81,200   50,600  
                   
  Total fixed expenses   413,400   123,400   167,700   122,300  
                   
  Net operating income (loss) $ 41,600 $ 30,600 $ 39,300 $ -28,300  
   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
   

 

*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 $41,600 last year to be too small. (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 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. 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:  

 

1a. What is the impact on net operating income by discontinuing housekeeping program? (Input the amount as a positive value. Omit the “$” sign in your response.)
  (Click to select)IncreaseDecrease in net operating income by $  
1b. 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

 

 

 

2.

value:

17.00 points

 

 

Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a thermostat to Climate-Control for $33 per unit. To evaluate this offer, Climate-Control, Inc., has gathered the following information relating to its own cost of producing the thermostat internally: