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(Solved) 30. LO.7 (Product line) Lakeland Financial Services provides outsourcing services for three...


  30.    LO.7 (Product line) Lakeland Financial Services provides outsourcing services for three areas: payroll, general ledger (GL), and tax compliance. The company is currently contemplating the elimination of the GL area because it is showing a pre-tax loss. An annual income statement follows. Lakeland Financial Services Income Statement by Service Line For the Year Ended July 31, 2010 (in thousands)     Payroll   GL   Tax   Total   Sales $4,400   $3,200   $3,600   $11,200   Cost of sales (2,800)   (2,000)    (2,160)      (6,960)   Gross margin $1,600   $1,200   $1,440   $ 4,240   Avoidable fixed and variable costs $1,260   $1,470   $1,040   $  3,770   Allocated fixed costs      180        140        210          530   Total fixed costs $1,440   $1,610   $1,250   $ 4,300   Operating profit $   160   $ (410)   $  190   $     (60)     a.     Should corporate management drop the GL area? Support your answer with appro- priate schedules. b.    If the GL area were dropped, how would the company’s pre-tax profit be affected?  

 


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