Sales and Cost- eBook Caloulaton Print Item Segment Contribution Margin Analysis

ID: 2557481 • Letter: S

Question

Sales and Cost- eBook Caloulaton 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) Home Box Office (pay television) Warner Bros. (films, television, and videos) Assume that the variable costs as a percent of sales for each segment are as follows: Turner Home Box Office Warner Bros. a Determine the contribution margin and 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. $71,900 21,900 53,500 20% 38% 27% Turner Home Box Office Warner Bros. Revenues Variable costs Contribution 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 mont proftable. If the volume of business is not sufficient to exceed the break- Check My Work 4 more Check My Work uses remaining Previous

Explanation / Answer

Solution:

Part a --- Contribution Margin

Turner

Home Box Office

Warner Bros.

Revenues

$71,900

$21,900

$53,500

Variable Costs

$14,380

(71900*20%)

$8,322

(21900*38%)

$14,445

(53500*27%)

Contribution Margin (Sales - Variable Cost)

$57,520

$13,578

$39,055

Contribution Margin Ratio (Contribution Margin / Sales x 100)

80%

62%

73%

Part b – already answered.

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