58 **Case Study: Cost Management Decision at Loving Home Care****Background:** Due to Medicare reimbursement cuts, Loving Home Care is evaluating the feasibility of discontinuing its Certified Nursing Assistant (CNA) Division. An important consideration in this analysis is the reallocation of fixed costs from the CNA Division to the Nursing Division if the CNA Division is shut down. Below is the condensed income statement for the year ended December 31.**Loving Home Care: Condensed Income Statement for the Year Ended December 31**| Division | Nursing | CNA | Total ||----------|---------|-----|-------|| **Sales** | $3,500,000 | $1,000,000 | $4,500,000 || **Cost of Goods Sold:** | | | || Variable Costs | $2,000,000 | $700,000 | $2,700,000 || Fixed Costs | $400,000 | $400,000 | $800,000 || **Total Cost of Goods Sold** | $2,400,000 | $1,100,000 | $3,500,000 || **Income (Loss) from Operations** | $1,100,000 | -$100,000 | $1,000,000 |**Graph/Diagram Explanation:** There is no graph or diagram in the provided image, but the income statement table should be clearly explained as it contains key financials for analysis.**Key Points to Consider:**1. **Sales Distribution:** The Nursing Division generates $3,500,000 in sales, while the CNA Division accounts for $1,000,000. 2. **Variable Costs:** The Nursing Division has variable costs of $2,000,000, and the CNA Division incurs $700,000 in variable costs.3. **Fixed Costs:** Both divisions incur the same amount of fixed costs, i.e., $400,000 each.4. **Total Cost of Goods Sold:** The Nursing Division has a total cost of goods sold (COGS) amounting to $2,400,000, while the CNA Division has a COGS of $1,100,000.5. **Income (Loss) from Operations:** The Nursing Division shows a positive income from operations of $1,100,000, whereas the CNA Division operates at a loss of $100,000.**Recommendation:** When evaluating the continuation or discontinuation

Decision making is a process taking a decision of selecting one alternative. We consider only…

Due to Medicare reimbursement cuts, Loving Home Care is considering shutting down its Certified Nursing Assistant (CNA) Division. Fixed costs will have to be transferred to the Nursing Division if the CNA Division is discontinued. Based on the following income statement make a recommendation to the president regarding this decision. Sales Cost of goods sold: Variable costs Loving Home Care Condensed Income Statement For the Year Ended December 31 CNA $1,000,000 Fixed costs Total cost of goods sold Income (loss) from operations Nursing $3,500,000 $2,000,000 400,000 $2,400,000 $1,100,000 $700,000 400,000 $1,100,000 $(100,000) the CNA Division, since income would Total $4,500,000 $2,700,000 800,000 $3,500,000 $1,000,000 by $ if the division were

Due to Medicare reimbursement cuts, Loving Home Care is considering shutting down its Certified Nursing Assistant (CNA) Division. Fixed costs will have to be transferred to the Nursing Division if the CNA Division is discontinued. Based on the following income statement make a recommendation to the president regarding this decision. Sales Cost of goods sold: Variable costs Loving Home Care Condensed Income Statement For the Year Ended December 31 CNA $1,000,000 Fixed costs Total cost of goods sold Income (loss) from operations Nursing $3,500,000 $2,000,000 400,000 $2,400,000 $1,100,000 $700,000 400,000 $1,100,000 $(100,000) the CNA Division, since income would Total $4,500,000 $2,700,000 800,000 $3,500,000 $1,000,000 by $ if the division were

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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