Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc. (TWX), for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in parentheses. Time Warner, Inc. Segment Revenues (in millions) Turner (cable networks and digital media) $11,364 Home Box Office (pay television) 5,890 Warner Bros. (films, television, and videos) 13,037 Assume that the variable costs as a percent of sales for each segment are as follows: 40% Turner Home Box Office 35% Warner Bros 25% a. Determine the contribution margin and contribution margin ratio. Enter amounts in millions. When required, round to the nearest whole millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to the nearest whole percent for each segment from the information given. Home Box Office Turner Warner Bros. Revenues Variable costs Contribution margin Contribution margin ratio (as a percent) % b. Does your answer to (a) mean that the other segments are more profitable businesses? The higher contribution margin ratio of a segment should not be interpreted as being the of business is not sufficient to exceed the break-even point, then the segments would be costs also should be considered in determining the overall profitability of the segments. The will be to changes in volume. profitable segment. If the volume . In the final analysis, the fixed shows how sensitive the profit
Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc. (TWX), for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in parentheses. Time Warner, Inc. Segment Revenues (in millions) Turner (cable networks and digital media) $11,364 Home Box Office (pay television) 5,890 Warner Bros. (films, television, and videos) 13,037 Assume that the variable costs as a percent of sales for each segment are as follows: 40% Turner Home Box Office 35% Warner Bros 25% a. Determine the contribution margin and contribution margin ratio. Enter amounts in millions. When required, round to the nearest whole millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to the nearest whole percent for each segment from the information given. Home Box Office Turner Warner Bros. Revenues Variable costs Contribution margin Contribution margin ratio (as a percent) % b. Does your answer to (a) mean that the other segments are more profitable businesses? The higher contribution margin ratio of a segment should not be interpreted as being the of business is not sufficient to exceed the break-even point, then the segments would be costs also should be considered in determining the overall profitability of the segments. The will be to changes in volume. profitable segment. If the volume . In the final analysis, the fixed shows how sensitive the profit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Segment Contribution Margin Analysis
The operating revenues of the three largest business segments for Time Warner, Inc. (TWX), for a recent year follow. Each segment includes a
number of businesses, examples of which are indicated in parentheses.
Time Warner, Inc.
Segment Revenues
(in millions)
Turner (cable networks and digital media)
$11,364
Home Box Office (pay television)
5,890
Warner Bros. (films, television, and videos)
13,037
Assume that the variable costs as a percent of sales for each segment are as follows:
40%
Turner
Home Box Office
35%
Warner Bros
25%
a. Determine the contribution margin and contribution margin ratio. Enter amounts in millions. When required, round to the nearest whole
millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to the nearest whole percent for each segment
from the information given.
Transcribed Image Text:Home Box Office
Turner
Warner Bros.
Revenues
Variable costs
Contribution margin
Contribution margin ratio (as a percent)
%
b. Does your answer to (a) mean that the other segments are more profitable businesses?
The higher contribution margin ratio of a segment should not be interpreted as being the
of business is not sufficient to exceed the break-even point, then the segments would be
costs also should be considered in determining the overall profitability of the segments. The
will be to changes in volume.
profitable segment. If the volume
. In the final analysis, the fixed
shows how sensitive the profit
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