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) $35,400 Home Box Office (pay television) 67,500 Warner Bros. (films, television, and videos) 60,100 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 31% Home Box Office 25% Warner Bros. 35% 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 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 ____ 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

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)	$35,400
Home Box Office (pay television)	67,500
Warner Bros. (films, television, and videos)	60,100

Assume that the variable costs as a percent of sales for each segment are as follows:

Turner	31%
Home Box Office	25%
Warner Bros.	35%

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	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 __________ 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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