16. Jackson County Senior Services is a nonprofit organizationdevoted to providing essential services to seniors who live intheir own homes within the Jackson County area. Three services areprovided for seniors—home nursing, Meals On Wheels, andhousekeeping. Data on revenue and expenses for the past yearfollow:

		Total		Home Nursing		Meals On Wheels		House- keeping
Revenues	$	930,000	$	269,000	$	407,000	$	254,000
Variable expenses		462,000		114,000		196,000		152,000
Contribution margin		468,000		155,000		211,000		102,000
Fixed expenses:
Depreciation		69,300		8,500		40,600		20,200
Liability insurance		44,400		20,800		7,800		15,800
Program administrators’ salaries		114,300		40,200		38,400		35,700
General administrative overhead*		186,000		53,800		81,400		50,800
Total fixed expenses		414,000		123,300		168,200		122,500
Net operating income (loss)	$	54,000	$	31,700	$	42,800	$	(20,500)

*Allocated on the basis of program revenues.

The head administrator of Jackson County Senior Services, JudithMiyama, considers last year’s net operating income of $54,000 to beunsatisfactory; therefore, she is considering the possibility ofdiscontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is usedto carry the housekeepers and their equipment from job to job. Ifthe program were discontinued, the van would be donated to acharitable organization. None of the general administrativeoverhead would be avoided if the housekeeping program were dropped,but the liability insurance and the salary of the programadministrator would be avoided.

Required:

1-a. What is the financial advantage (disadvantage) ofdiscontinuing the Housekeeping program?

1-b. Should the Housekeeping program be discontinued?

2-a. Prepare a properly formatted segmented incomestatement.

2-b. Would a segmented income statement format be more useful tomanagement in assessing the long-run financial viability of thevarious services?

17. Come-Clean Corporation produces a variety of cleaningcompounds and solutions for both industrial and household use.While most of its products are processed independently, a few arerelated, such as the company’s Grit 337 and its Sparkle silverpolish.

Grit 337 is a coarse cleaning powder with many industrial uses.It costs $1.20 a pound to make, and it has a selling price of $6.80a pound. A small portion of the annual production of Grit 337 isretained in the factory for further processing. It is combined withseveral other ingredients to form a paste that is marketed asSparkle silver polish. The silver polish sells for $5.00 perjar.

This further processing requires one-fourth pound of Grit 337per jar of silver polish. The additional direct variable costsinvolved in the processing of a jar of silver polish are:

Other ingredients	$	0.50
Direct labor		1.40
Total direct cost	$	1.90

Overhead costs associated with processing the silver polishare:

Variable manufacturing overhead cost		25	% of direct labor cost
Fixed manufacturing overhead cost (per month)
Production supervisor	$	3,100
Depreciation of mixing equipment	$	1,600

The production supervisor has no duties other than to overseeproduction of the silver polish. The mixing equipment isspecial-purpose equipment acquired specifically to produce thesilver polish. It can produce up to 2,000 jars of polish per month.Its resale value is negligible and it does not wear out throughuse.

Advertising costs for the silver polish total $4,900 per month.Variable selling costs associated with the silver polish are 5% ofsales.

Due to a recent decline in the demand for silver polish, thecompany is wondering whether its continued production is advisable.The sales manager feels that it would be more profitable to sellall of the Grit 337 as a cleaning powder.

Required:

1. How much incremental revenue does the company earn per jar ofpolish by further processing Grit 337 rather than selling it as acleaning powder? (Round your answer to 2 decimalplaces.)

2. How much incremental contribution margin does the companyearn per jar of polish by further processing Grit 337 rather thanselling it as a cleaning powder? (Round your intermediatecalculations and final answer to 2 decimal places.)

3. How many jars of silver polish must be sold each month toexactly offset the avoidable fixed costs incurred to produce andsell the polish? (Round your intermediate calculations to 2decimal places.)

4. If the company sells 8,900 jars of polish, what is thefinancial advantage (disadvantage) of choosing to further processGrit 337 rather than selling is as a cleaning powder?(Enter any "disadvantages" as a negative value. Round yourintermediate calculations to 2 decimal places.)

5. If the company sells 10,200 jars of polish, what is thefinancial advantage (disadvantage) of choosing to further processGrit 337 rather than selling is as a cleaning powder?(Enter any "disadvantages" as a negative value. Round yourintermediate calculations to 2 decimal places.)

18.

Delta Company produces a single product. The cost of producingand selling a single unit of this product at the company’s normalactivity level of 105,600 units per year is:

Direct materials	$	2.20
Direct labor	$	4.00
Variable manufacturing overhead	$	0.90
Fixed manufacturing overhead	$	4.55
Variable selling and administrative expenses	$	1.70
Fixed selling and administrative expenses	$	3.00

The normal selling price is $25.00 per unit. The company’scapacity is 120,000 units per year. An order has been received froma mail-order house for 1,200 units at a special price of $22.00 perunit. This order would not affect regular sales or the company’stotal fixed costs.

Required:

1. What is the financial advantage (disadvantage) of acceptingthe special order?

2. As a separate matter from the special order, assume thecompany’s inventory includes 1,000 units of this product that wereproduced last year and that are inferior to the current model. Theunits must be sold through regular channels at reduced prices. Whatunit cost is relevant for establishing a minimum selling price forthese units?

19.

Futura Company purchases the 72,000 starters that it installs inits standard line of farm tractors from a supplier for the price of$10.80 per unit. Due to a reduction in output, the company now hasidle capacity that could be used to produce the starters ratherthan buying them from an outside supplier. However, the company’schief engineer is opposed to making the starters because theproduction cost per unit is $11.40 as shown below:

	Per Unit			Total
Direct materials	$	5.00
Direct labor		2.80
Supervision		1.50		$	108,000
Depreciation		1.10		$	79,200
Variable manufacturing overhead		0.50
Rent		0.50		$	36,000
Total product cost	$	11.40

If Futura decides to make the starters, a supervisor would haveto be hired (at a salary of $108,000) to oversee production.However, the company has sufficient idle tools and machinery suchthat no new equipment would have to be purchased. The rent chargeabove is based on space utilized in the plant. The total rent onthe plant is $87,000 per period. Depreciation is due toobsolescence rather than wear and tear.

Required:

What is the financial advantage (disadvantage) of making the72,000 starters instead of buying them from an outsidesupplier?