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 $(19,200)(16,700)(7,000)(19,800)$

Operating income $$9,193$ $$(198)$ $$2,636$ $$(2,833)$

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.

The Walt Disney Company

Variable Costing Income Statement

$($in millions$)$

Line Item Description Media

Networks Parks, Experiences,

and Products Studio

Entertainment Direct$-$to$-$Consumer &

International

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

$-$ Select $--$ Select $--$ Select $--$ Select $-$

$$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$ $$-$ Select $-$

$-$ Select $--$ Select $--$ Select $--$ Select $-$

Operating income$/$loss $Operating income$/$loss $Operating income$/$loss $Operating income$/$loss $Operating income$/$loss

Question Content Area

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 $10$

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

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

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

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

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

contribution margin ratio and fill in the blank $7$ of $10$

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

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

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

of Disney$$s normal operations for these segments.