The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year

Question:

The operating revenues of the three largest business segments for Time Warner, Inc., for a recent year are shown below. Each segment includes a number of businesses, examples of which are indicated in parentheses.

Time Warner, Inc.

Segment Revenues

(In millions)

Filmed Entertainment (Warner Bros.) ..........$ 11,784

Networks (CNN, HBO, WB) ............. 13,562

Publishing (Time, People, Sports Illustrated) ....... 6,328

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

Filmed Entertainment ........34%

Networks .............32%

Publishing ............70%

a. Determine the contribution margin (round to whole millions) and contribution margin ratio (round to whole percent’s) for each segment from the above information.

b. Why is the contribution margin ratio for the Publishing segment smaller than for the other segments?

c. Does your answer to (b) mean that the other segments are more profitable businesses than the Publishingsegment?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...