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.

a. Should corporate management drop the GL area? Support your answer with appropriate schedules.
b. If the GL area were dropped, how would the company's pre-tax profit be affected?

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Lakeland Financial Services Income Statement by Service Line For the Year Ended July 31, 2010 (in thousands) Total Payr GL $4,400 $3,200 $3,600 $11,200 (2,800) 2000) 2160 (6960) $1,600 1200 1440 $ 4240 Tax Sales Cost of sales Gross margin Avoidable fixed and variable costs 1260 $1,470 1,040 3,770 Allocated fixed costs 530 $1440 $1610 ,250 $ 4300 5 160 (410) 190 (60) 180 140 210 Total fixed costs Operating profit