eBook Calculator Segment analysis for a service company Charles Schwab Corporation (SCHW) 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 $5,411 $2,067 Operating income 2,031 962 Depreciation 180 54 a. The Investor Services segment serves the retail customer, you and me. These are the brokerage, Internet, and mutual fund services used by individual Investors. The Advisor 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" segment. 1. Commissions to brokers Variable Cost 2. Fees paid to exchanges for executing trades Variable Cost Depreciation on brokerage offices Fixed Cost 4. Transaction fees incurred by Schwab mutual funds to purchase and sell shares Variable Cost 5. Property taxes on brokerage offices Fixed Cost 6. Depreciation on brokerage office equipment, such as computers and computer networks Fixed Cost 7. Advertising Variable Cost Check My Work Previous Next eBook Calculator 5. Property taxes on brokerage offices Fixed Cost 6. Depreciation on brokerage office equipment, such as computers and computer networks Fixed Cost 7. Advertising Variable Cost C. Estimate the contribution margin for each segment, assuming depreciation represents the majority of fixed costs. Investor Services (in millions) Advisor Services (in millions) Estimated contribution margin $ 2,211 $ 1,016 d. If Schwab decided to sell its "Advisor Services" accounts to another company, estimate how much operating income would decline under the following assumptions. million Assume the fixed costs that serve Advisor investors would not be sold but would be used by the other sector: $ Assume the fixed assets were "sold": $ million Feedback Check My Work a. Use the Internet to develop your answer. Variable costs are costs that vary with output. Fixed costs remain the same, no matter how much output a company produces. c. Operating income plus fixed costs equals contribution margin. d. Consider that the advisor and retail investors use nearly the same assets. Check My Work Previous Next