The business staff of the law firm Boston, Bailey and Bentley has constructed the following report which breaks down the firms 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 to provide the legal services for each division and hence directly correlates to the division revenues. The fixed expenses are the items that are specifically traceable to each division. Selling and administrative expenses consist of the managing partners salary, general administrative expenses and general firm advertising. For convenience, these items are simply allocated 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 commercial law area and drop the family law segment since it is losing money. However, many of the firms commercial clients also use the firm for their family law requirements such as drawing up wills. The partners decide that further information is necessary before they make a final decision. They decide to ask for help in evaluating the numbers and hire you as their consultant. 1) Prepare a segment report (segment margin income statement) to present to the partners. Properly allocate the expenses and carefully consider common fixed expenses. Make a written recommendation on whether or not to eliminate the family law segment. Use the results of your segment report to support your recommendation. Be sure to clearly and completely explain your reasons.

Family commercial Law Law S1,000,000 S400,000 S600,000 Revenues from clients 220.000 100.000 120.000 Cost of legal services 570 000 280 390 000 Fixed expenses Gross margin 110.000 200000 90,000 Selling & administrative expenses 60000 24000 36.00 Rp4000 Net operating income (loss)