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	$4,771		$1,609
Operating income before taxes	1,681		598
Depreciation and amortization	171		53

a. How do you believe Schwab defines the difference between the segments? (answer is ONE of these three choices)

• 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: (the answer is ONE of these four choices)

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

c. Estimate the contribution margin for each segment. Enter your answers in millions (example: 80,000,000 would be entered as "80").

	Investor (Retail) Services		Advisor Services
Operating income before taxes	$		$
Plus depreciation and amortization	$		$
Estimated contribution margin	$		$

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. _______________ $ million