1. Segment Analysis

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

   	Investor (Retail) Services		Advisor Services
   Revenues	$4,017		$2,852
   Operating income before taxes	1,100		506
   Depreciation and amortization	125		61

   a. How do you believe Schwab defines the difference between the segments?

   The Investor (Retail) Services segment probably focuses on investors who buy stocks and the Advisor Services buys only mutual funds.The Investor (Retail) Services segment probably focuses on the company's smaller offices and the Advisor Services focuses on their larger city offices.The Investor (Retail) Services segment serves the retail customer and the Advisor Services segment includes services for corporate or pension funds.

   b. All of the following would be considered to be variable costs in the "Investor (Retail) Services" segment except:

   Commissions to brokers.Depreciation on brokerage offices.Fees paid to exchanges for executing trades.Transaction fees incurred by Strobe mutual funds to purchase and sell shares.

   c. Estimate the contribution margin for each segment assuming that depreciation and amortization are the only fixed assets incurred.

   	Investor (Retail) Services		Advisor Services
   Operating income before taxes	$fill in the blank 3		$fill in the blank 4
   Plus depreciation and amortization	$fill in the blank 5		$fill in the blank 6
   Estimated contribution margin	$fill in the blank 7		$fill in the blank 8

   d. If Schwab decided to sell its "advisory services" accounts to another company, estimate how much operating income would decline. Assume that the fixed costs that serve advisory services (computers, servers, and facilities) would not be sold but would be used by the other sector. $fill in the blank 9 million

Lease or Sell Decision

Inman Industries is considering selling excess machinery with a book value of $283,500 (original cost of $401,700 less accumulated depreciation of $118,200) for $275,600 less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $287,000 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Industries' costs of repairs, insurance, and property tax expenses are expected to be $26,100.

Question Content Area

a. Prepare a differential analysis report for the lease or sell decision.

INMAN INDUSTRIES Proposal to Lease or Sell Machinery Differential Analysis Report

Differential revenue from alternatives:
CashDepreciationNotes PayableNotes ReceivableRevenue from leaseRevenue from lease	$Revenue from lease
Commission on saleDepreciationNotes payableLoss on saleProceeds from saleProceeds from sale	Proceeds from sale
Commission on saleDepreciationDifferential revenue from leaseNotes payableRepairs, insurance, and property tax expenses from leaseDifferential revenue from lease		$Differential revenue from lease
Differential cost of alternatives:
Accounts payableDepreciationNotes payableProceeds from saleRepairs, insurance, and property tax expenses from leaseRepairs, insurance, and property tax expenses from lease	$Repairs, insurance, and property tax expenses from lease
CashCommission on saleLoss from saleNotes PayableRevenue from leaseCommission on sale	Commission on sale
Accounts payableCommission on saleDifferential cost of leaseDifferential revenue from leaseProceeds from saleDifferential cost of lease		Differential cost of lease
Differential cost of leaseDifferential cost of saleNet differential income from lease alternativeNet differential loss from lease alternativeNet differential income from lease alternative		$Net differential income from lease alternative