Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in parentheses. Turner (cable networks and digital media) Home Box Office (pay television) Warner Bros. (films, television, and videos) Assume that the variable costs as a percent of sales for each segment are as follows: Turner Home Box Office Warner Bros. Time Warner, Inc. Segment Revenues (in millions) Revenues $24,200 66,300 94,800 Variable costs Contribution margin Contribution margin ratio (as a percent) 41% a. Determine the contribution margin and contribution margin ratio for each segment from the information given. When required, round to the nearest whole millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to whole percents for each segment from the information given. Turner Home Box Office 29% 53% % % Warner Bros. % 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 profitable segment. If the volume of business is not sufficient to exceed the break- even point, then the segments would be . In the final analysis, the fixed costs also should be considered in determining the overall profitability of the segments. The shows how sensitive the profit will be to changes in volume.
Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in parentheses. Turner (cable networks and digital media) Home Box Office (pay television) Warner Bros. (films, television, and videos) Assume that the variable costs as a percent of sales for each segment are as follows: Turner Home Box Office Warner Bros. Time Warner, Inc. Segment Revenues (in millions) Revenues $24,200 66,300 94,800 Variable costs Contribution margin Contribution margin ratio (as a percent) 41% a. Determine the contribution margin and contribution margin ratio for each segment from the information given. When required, round to the nearest whole millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to whole percents for each segment from the information given. Turner Home Box Office 29% 53% % % Warner Bros. % 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 profitable segment. If the volume of business is not sufficient to exceed the break- even point, then the segments would be . In the final analysis, the fixed costs also should be considered in determining the overall profitability of the segments. The shows how sensitive the profit will be to changes in volume.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Segment Contribution Margin Analysis
The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year follow. Each segment includes a number of businesses, examples of which are indicated in
parentheses.
Turner (cable networks and digital media)
Home Box Office (pay television)
Warner Bros. (films, television, and videos)
Assume that the variable costs as a percent of sales for each segment are as follows:
Turner
Home Box Office
Warner Bros.
Time Warner, Inc.
Segment Revenues
(in millions)
Revenues
Variable costs
a. Determine the contribution margin and contribution margin ratio for each segment from the information given. When required, round to the nearest whole millionth (for example, round
5,688.7 to 5,689). Round contribution margin ratio to whole percents for each segment from the information given.
Turner
Home Box Office
Contribution margin
Contribution margin ratio (as a percent)
$
$24,200
66,300
94,800
$
41%
29%
53%
%
$
%
Warner Bros.
$
%
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
profitable segment. If the volume of business is not sufficient to exceed the break-
even point, then the segments would be
. In the final analysis, the fixed costs also should be considered in determining the overall profitability of the segments. The
shows how sensitive the profit will be to changes in volume.
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