Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner,...

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Segment Contribution Margin Analysis The operating revenues of the three largest business segments for Time Warner, Inc., for

Warner Bros. (films, television, and videos) 75,400 Assume that the variable costs as a percent of sales for each segment are

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Answer 1

Answer #1

	Tuner	Home box office	Warner bros
Revenues (a)	15000	20000	75400
variable costs	6300	5800	16588
contribution margin (b)	8700	14200	58812
contribution margin ration (as a percent) (a)/(b)	58%	71%	78%

b) The higher contribution margin ratio of a segment should not be interpreted

as being the most profitable segment if the volume of business is not sufficient

to exceed the break-even point then the segments would be unprofitable in the

final analysis the fixed costs also should be considered in determining the overall

the profitability of the segments the contribution margin ratio shows how sensitive

the profit will be to changes in volume

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Answer 2

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