eBook

Print Item

Question Content Area

Segment Analysis for a Service Company

Charles Schwab Corporation is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business segments as follows (in millions):

	Investor Services	Advisor Services
Revenues	$7,321		$2,811
Income from operations	3,176		1,386
Depreciation	186		120

a. The

Advisor ServicesInvestor Services

segment serves the retail customer, you and me. These include brokerage, Internet, and mutual fund services. The

Advisor ServicesInvestor Services

segment includes the same services provided for financial institutions, such as banks, mutual fund managers, insurance companies, and pension plan administrators.

b. Indicate whether the following costs are a Variable Cost or a Fixed Cost in the Investor Services.

1. Commissions to brokers

Variable CostFixed Cost

2. Fees paid to exchanges for executing trades

Variable CostFixed Cost

3. Depreciation on brokerage offices

Variable CostFixed Cost

4. Transaction fees incurred by Schwab mutual funds to purchase and sell shares

Variable CostFixed Cost

5. Property taxes on brokerage offices

Variable CostFixed Cost

6. Advertising

Variable CostFixed Cost

7. Depreciation on brokerage office equipment, such as computers and computer networks

Variable CostFixed Cost

c. Estimate the contribution margin for each segment, assuming that depreciation represents the majority of fixed costs.

	Investor Services (in millions)	Advisor Services (in millions)
Estimated contribution margin	$fill in the blank 10	$fill in the blank 11

d. If Schwab decided to sell its Advisor Services business to another company, estimate how much operating income would decline under the following assumptions.

Assume the fixed costs that serve the Advisor Services business would not be sold but would be used by the other sector: $fill in the blank 12 million Assume the fixed assets were sold: $fill in the blank 13 million