Contentious Law Firm offers litigation, divorce, and estate planning services. The partners are

concerned about the profitability of their litigation business. If the firm drops the litigation work,

the lawyers might do more divorce work. The firm estimates that $20\%$ of the fixed costs

associated with litigation would be eliminated and that the increase in divorce work revenue

$($and variable costs$)$ could be $50\%.$ Following are recent income numbers:

Litigation Divorce Estate Planning

Sales $$300,000$ $$500,000$ $$600,000$

Variable costs $(250,000)(300,000)(350,000)$

Contribution

margin

$$50,000$ $$200,000$ $$250,000$

Fixed costs $(50,000)(60,000)(80,000)$

Income $ $0$ $$140,000$ $$170,000$

a$.$ Should the firm drop its litigation work? What would be the effect on income of just

dropping litigation without increasing divorce work?

b$.$ Should the firm drop its litigation work and increase its divorce work? What would be the

effect on income?

c$.$ Give three other factors that the firm should consider when evaluating whether to keep

or drop the litigation work.