SegmentContribution 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)$76,100Home Box Office (pay television)56,400Warner Bros. (films, television, and videos)84,500

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

Turner27%Home Box Office24%Warner Bros.15%

a.Determine thecontribution marginand contribution margin ratio for each segment from the information given. Round contribution margin ratio to whole percents for each segment from the information given. Enter all amounts as positive numbers.

TurnerHome Box OfficeWarner Bros.Revenues$$$Variable costsContribution margin$$$Contribution margin ratio (as a percent)%%%

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

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.