Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

eBook Print Item Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year follow.

eBook

Print Item

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) $10,596
Home Box Office (pay television) 5,615
Warner Bros. (films, television, and videos) 12,993

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

Turner 40%
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. Enter all amounts as positive numbers.

Turner Home Box Office Warner Bros.
Revenues $fill in the blank 1 $fill in the blank 2 $fill in the blank 3
Variable costs

fill in the blank 4

fill in the blank 5

fill in the blank 6

Contribution margin $fill in the blank 7 $fill in the blank 8 $fill in the blank 9
Contribution margin ratio (as a percent)

fill in the blank 10

%

fill in the blank 11

%

fill in the blank 12

%

b. Does your answer to (b) mean that the other segments are more profitable businesses?

The higher contribution margin ratio of a segment should not be interpreted as being the

leastmost

profitable segment. If the volume of business is not sufficient to exceed the break-even point, then the segments would be

somewhat profitableunprofitable

. In the final analysis, the fixed costs also should be considered in determining the overall profitability of the segments. The

contribution margin ratiofixed costsvariable costs

shows how sensitive the profit will be to changes in volume.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Hospitals What They Are And How They Work

Authors: Don Griffin, Donald J Griffin

3rd Edition

076372758X, 9780763727581

More Books

Students also viewed these Accounting questions