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Segment Contribution Margin Analysis

The Walt Disney Company (DIS) is a global entertainment company that is organized into four business segments as follows:

Media Networks: Television production and distribution, including ABC television network, ESPN, National Geographic.

Parks, Experiences, and Products: Theme parks and resorts, including Walt Disney World and Disneyland; Experiences, including Disney Cruise Line and Disney Vacation Club; Products, including Disney and Pixar characters, comic books, and magazines.

Studio Entertainment: Music and motion picture production and distribution, including Twentieth Century Studios, Marvel, and Lucasfilm.

Direct-to-Consumer & International: Streaming services, including Disney+, ESPN+, and Hulu.

For a recent year, Disney reported the following segment results (in millions):

Line Item Description	Segment Media Networks	Segment Parks, Experiences, and Products	Segment Entertainment	Direct-to-Consumer & International
Revenues	$28,393	$16,502	$9,636	$16,967
Operating expenses	(19,200)	(16,700)	(7,100)	(19,900)
Operating income	$9,193	$(198)	$2,536	$(2,933)

Assume the following percentages of total operating expenses for each segment are variable:

Segment	Percentage of Variable Operating Expenses
Media Networks	75%
Parks, Experiences, and Products	60%
Studio Entertainment	80%
Direct-to-Consumer & International	70%

Question Content Area

a. Prepare a variable costing income statement for The Walt Disney Company by segment. If required, use a minus sign to indicate an operating loss. Round all amounts to the nearest million.

Line Item Description	Media Networks	Parks, Experiences, and Products	Studio Entertainment	Direct-to-Consumer & International
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable commission expenseSales	$Sales	$Sales	$Sales	$Sales
Contribution marginManufacturing marginSalesVariable cost of goods soldVariable operating expensesVariable operating expenses	Variable operating expenses	Variable operating expenses	Variable operating expenses	Variable operating expenses
Contribution marginManufacturing marginFixed operating expensesSalesVariable commission expenseContribution margin	$Contribution margin	$Contribution margin	$Contribution margin	$Contribution margin
Contribution marginManufacturing marginSalesFixed operating expensesVariable commission expenseFixed operating expenses	Fixed operating expenses	Fixed operating expenses	Fixed operating expenses	Fixed operating expenses
Operating income/loss	$Operating income/loss	$Operating income/loss	$Operating income/loss	$Operating income/loss

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b. Compute the contribution margin ratio for each segment. Round ratios to the nearest tenth of a percent.

Segment	Contribution Margin Ratio
Media Networks	fill in the blank 1 of 4%
Parks, Experiences, and Products	fill in the blank 2 of 4%
Studio Entertainment	fill in the blank 3 of 4%
Direct-to-Consumer & International	fill in the blank 4 of 4%

c. Based on your answers to (a) and (b), interpret the segment performance. All segments generated a fill in the blank 1 of 10

positivenegativepositive

contribution margin, even though the Parks, Experiences, and Products and Direct-to-Consumer & International segments generated operating fill in the blank 2 of 10

lossesprofitslosses

. The Media Networks segment generated the fill in the blank 3 of 10

highestlowesthighest

contribution margin and contribution margin ratio. The Parks, Experiences, and Products and Studio Entertainment segments generated approximately the fill in the blank 4 of 10

samedifferentsame

contribution margin ratios. However, because of its size, the Parks, Experiences, and Products segment generated fill in the blank 5 of 10

morelessmore

contribution margin than the Studio Entertainment segment. The Direct-to-Consumer & International segment generated the fill in the blank 6 of 10

lowesthighestlowest

contribution margin ratio and fill in the blank 7 of 10

lowesthighestlowest

contribution margin. The recent COVID-19 pandemic fill in the blank 8 of 10

adverselynot adverselyadversely

affected the preceding results. The Parks, Experiences, and Products and Studio Entertainment segments were fill in the blank 9 of 10

particularlynot particularlyparticularly

affected. Thus, the preceding results are fill in the blank 10 of 10

not indicativeindicativenot indicative

of Disneys normal operations for these segments.