Question

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 Institutional Services
Revenues $3,016 $1,523
Income from operations 847 523
Depreciation 133 54
A. How does a brokerage company like Schwab define the "Investor Services" and "Institutional Services" segments? Use the Internet 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 includes the same services provided for financial institutions, such as banks, mutual fund managers, insurance companies, and pension plan administrators
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.
Depreciation on brokerage office equipment, such as computers and computer networks
Depreciation on brokerage offices
Property taxes on brokerage offices
Commissions to brokers
Fees paid to exchanges for executing trades
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
Commissions to brokers
Property taxes on brokerage offices
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 (in millions) for each segment, assuming depreciation represents the majority of fixed costs.
Investor Services Institutional Services
Estimated contribution margin $_____________ $________________
D. If Schwab decided to sell its "Institutional Services" accounts to another company, estimate how much operating income would decline (in millions). $___________

Answer 1

Answer: The answer is provided below

Explanation:

A. A brokerage company such as Schwab will define the "Investor Services" and the "Institutional Services" segments like this:

Investor services- This will be:

• Real brokerage and also banking services to the individual investors.

• Other retirement plan to the corporations.

Institutional services- This will be:

• Marketing support to the independent investment advisors.

• Trading tools to the independent investment advisors.

B. The variable costs in the "Investor Services" segment will include:

• Fees paid to exchanges for executing trades

• Transaction fees incurred by Schwab mutual funds to buy and sell shares

• Commissions to brokers.

The fixed costs in the "Investor Services" segment will include:

• Depreciation on brokerage offices.

• Depreciation on the brokerage office equipment, like computers and computer networks.

The explanation for C and D has been attached. For D, the operating income would decline by $577 million.