The operating revenues of the three largest business segments for Time Warner, I

Question

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) $80,000 Home Box Office (pay television) 32,700 Warner Bros. (films, television, and videos) 75,600 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 17% Home Box Office 43% Warner Bros. 35% 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. 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 profitable. 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.

Explanation / Answer

Time Warner Inc. Turner(in million) Homebox Office(in million Warner Bros (in million) Revenue $                 80,000 $                                  32,700 $                             75,600 Variable cost $                 13,600 $                                  14,061 $                             26,460 Contribution $                66,400 $                                 18,639 $                            49,140 Contribution Margin ratio (in %) 83% 57% 65% Contribution Margin ratio of Turner is more than other segments but it doesnot imply that it is more profibitable unless and untill its volume is sufficient enough to cover its Fixed cost.

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