Question

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)	$81,700
Home Box Office (pay television)	22,600
Warner Bros. (films, television, and videos)	53,900

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

Turner	50%
Home Box Office	37%
Warner Bros.	23%

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)		%		%		%

Answer 1

	Turner	Home box office	Warner Bros.
Revenues	$81,700	$22,600	$53,900
Variable costs	$40,850	$8,362	$12,397
Contribution margin	$40,850	$14,238	$41,503
Contribution margin ratio	50%	63%	77%

Variable costs

Turner = $81,700 * 50%

= $40,850

Home box office = $22,600 * 37%

= $8,362

Warner Bros = $53,900 * 23%

= $12,397

Contribution margin = Sales - Variable costs

Turner = $81,700 - $40,850

= $40,850

Home Box office = $22,600 - $8,362

= $14,238

Warner Bros = $53,900 - $12,397

= $41,503

Contribution margin ratio = Contribution margin / Sales

Turner = $40,850 / $81,700

= 50%

Home box office = $14,238 / $22,600

= 63%

Warner Bros = $41,503 / $53,900

= 77%