Segment Analysis for a Service Company

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 Advisor
    Services Services
Revenues   $7,321 $2,811
Income from operations   3,176 1,386
Depreciation   186 120

a.  The ____   segment serves the retail customer, you and me. These include brokerage, Internet, and mutual fund services. The ____  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 _____
2. Fees paid to exchanges for executing trades_____

3. Depreciation on brokerage offices  _______
4. Transaction fees incurred by Schwab mutual funds to purchase and sell shares _____

5. Property taxes on brokerage offices _____
6. Advertising ______
7. Depreciation on brokerage office equipment, such as computers and computer networks _____________

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

 

Investor Services

(in millions)

Advisor Services

(in million)

Estimated contribution margin $ $

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: $___ million
Assume the fixed assets were “sold”: $_____ million

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