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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

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.


a.How do you believe Schwab defines the difference between the segments?
b.Provide a specific example of a variable and fixed cost in the "Investor (Retail) Services" segment,
c.Estimate the contribution margin for each segment.
d.If Schwab divided to sell its "advisory services" accounts to another company, estimate how much operating income would decline.

To determine

(a)

Concept Introduction:

Segment analysis is analyzing the business which is divided into segments in regard to determine the more profitable and less profitable business segments and the potential of business to grow in the market.

Retail Investor: A retail investor is an individual person who buys and sells the securities for personal, not for an organization.

Advisor Services: It is a type of consulting services in which an authorized person develops findings and recommendation that are presented to the client for consideration.

To find out:

The difference between the Investor (Retail) Services and Advisor Services segments.

Explanation

Segment: In this, dividing the product and marketplace into segments, which are easily accessible, measurable, profitable and also have a high potential is known as a segment.

In the investor (retail) services segment, they are served to the retail customer...

To determine

(b)

Concept Introduction:

Segment analysis is analyzing the business which is divided into segments in regard to determine the more profitable and less profitable business segments and the potential of business to grow in the market.

Variable cost: A variable cost is the cost which varies from production size as like, direct material, and production charges etc.

Fixed cost: A fixed cost is the cost which remains same even with change in production volume. The total cost of the product contains variable cost, fixed cost and semi-variable cost.

To provide:

The example for variable and fixed cost in the segment of "Investor (Retail) Services".

To determine

(c)

Concept Introduction:

Contribution Margin: Contribution margin is the net of sale from variable cost i.e. selling price per unit minus variable cost per unit. The contribution is like as revenue which is not consumed by variable cost.

To find out:

The contribution margin for each segment.

To determine

(d)

Concept Introduction:

Contribution Margin: Contribution margin is the net of sale from variable cost i.e. selling price per unit minus variable cost per unit. The contribution is like as revenue which is not consumed by variable cost.

To find out:

The decline in operating income if it decides to sell the advisory services to another company.

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