1. The business staff of the law firm Boston, Bailey and Bentley has constructed the followingreport which breaks down the firm's overall results for last month into two business segments: family law and commercial law

The cost of legal services is a result of the actual labor time and use of resources required toprovide the legal services for each division and hence directly correlates to the divisionrevenues. The fixed expenses are the items that are specifically traceable to each division.Selling and administrative expenses consist of the managing partner's salary, generaladministrative expenses and general firm advertising. For convenience, these items are simplyallocated to the two segments based on revenues from clients.
The partners are concerned about the bottom line results of the family law segment. Ms.Bailey has suggested that the firm would be better off to concentrate on just the commerciallaw area and drop the family law segment since it is losing money. However, many of the firm'scommercial clients also use the firm for their family law requirements such as drawing up wills.
2. Another option being considered was initiated by the firm's advertising agency. Theyhave proposed an ad campaign targeted at boosting the revenues of the family lawsegment. The ad campaign would cost $20,000, and the advertising agency claims thatit would increase family law revenues by $100,000. Mr. Boston, the managing partnerof Boston, Bailey and Bentley believes this increase in business could be accommodatedwithout any increase in fixed expenses. Estimate the effect this ad campaign wouldhave on the family law segment margin and on the firm's overall net operating income.Again the firm turns to you to help with this analysis. Prepare another segment marginstatement showing the impact of this option. Give your recommendation for acceptingor not accepting this proposal. Use the result of your segment report to support yourrecommendation. Be sure to clearly and completely explain your reasons.

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Family Law Commercial Law Total Revenues from clients Cost of legal services Fixed expenses Gross margin $1,000,000 $ 400,000 $ 600,000 100,000 280,000 120,000 390,000 90,000 110,000 Selling & administrative expenses Net operating income (loss) 24,000 S (4,000) $ 50,000 $ 54,000