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	$3,304	$1,565
Income from operations	875	512
Depreciation	137	50

Required:

A.

How does a brokerage company like Schwab define the Investor Services and Advisor Services segments? Use the Internet and the Business Connection box in this chapter to develop your answer.

B.

Provide a specific example of a variable and fixed cost in the Investor Services segment.

C.

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

D.

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

A. How does a brokerage company like Schwab define the Investor Services and Advisor Services segments? Use the Internet and the Business Connection box in this chapter to develop your answer.

The segment serves the retail customer, you and me. These are the brokerage, Internet, and mutual fund services used by individual investors. The segment provides custodial, trading, support, and retirement business services. The custodial and support services are targeted toward serving independent investment advisors.

B. Provide a specific example of a variable and fixed cost in the Investor Services segment.

Variable costs in the Investor Services segment include: Check all that apply.

Property taxes on brokerage offices

Depreciation on brokerage offices

Commissions to brokers

Fees paid to exchanges for executing trades

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

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

Fixed costs in the Investor Services segment include: Check all that apply.

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

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

Property taxes on brokerage offices

Depreciation on brokerage offices

Commissions to brokers

Fees paid to exchanges for executing trades

C. Estimate the contribution margin for each segment, assuming that depreciation represents the majority of fixed costs (in millions).

	Investor Services	Advisor Services
Estimated contribution margin

D. If Schwab decided to sell its Advisor Services business to another company, estimate how much operating income would decline (in millions).