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. Time Warner, Inc. Segment Revenues (in millions) Turner (cable networks and digital media) $23,800 Home Box Office (pay television) 12,200 Warner Bros. (films, television, and videos) 21,300 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 42% Home Box Office 47% Warner Bros. 30% 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 g
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. Time Warner, Inc. Segment Revenues (in millions) Turner (cable networks and digital media) $23,800 Home Box Office (pay television) 12,200 Warner Bros. (films, television, and videos) 21,300 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 42% Home Box Office 47% Warner Bros. 30% 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 g
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
| Time Warner, Inc. Segment Revenues (in millions) |
||
| Turner (cable networks and digital media) | $23,800 | |
| Home Box Office (pay television) | 12,200 | |
| Warner Bros. (films, television, and videos) | 21,300 |
Assume that the variable costs as a percent of sales for each segment are as follows:
| Turner | 42% | |
| Home Box Office | 47% | |
| Warner Bros. | 30% |
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.
Transcribed Image Text: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
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
exceed the break-even point, then the segments would be
profitability of the segments. The
%
Warner Bros.
$
%
profitable segment. If the volume of business is not sufficient to
. In the final analysis, the fixed costs also should be considered in determining the overall
shows how sensitive the profit will be to changes in volume.
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