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) $49,500 Home Box Office (pay television) 54,100 Warner Bros. (films, television, and videos) 85,300 Assume that the variable costs as a percent of sales for each segment are as follows: Turner 38% Home Box Office 35% Warner Bros. 23% a. Determine the contribution margin and contribution margin ratio for each segment from the information given. When required, round to the nearest whole millionth (for example, round 5,688.7 to 5,689). Round contribution margin ratio to whole percents for each segment from the information given. Turner Home Box Office Warner Bros. Revenues $ $ $ Variable costs Contribution margin $ $ $ Contribution margin ratio (as a percent) % % %

Answer 1

Answer:

Contribution margin  for Turner  is $30,690

Contribution margin  for Home  Box  Office is $35,165

Contribution margin  for Warner Bros is $65,681

CM ratio:

Turner 62%

Home Box Office 65%

Warner Bros 77%

Explanation:

The computations of contribution margin and contribution margin ratio are as follows:

Time Warner Inc.    

                        Turner  Home Box Office Warner Bros total

                       $(miilion)      $(miilion             $(miilion)        $(miilion)

Segment revenue 49,500       54,100   85,300                   188,900    

Variable costs   (18,810)     (18,935)    (19,619)                   (57,364)

Contribution margin 30,690     35,165           65,681                    131,536  

CM ratio                        62%         65%       77%  

Variable costs as % of sales 0.38  0.35 0.23  

CM ratio=contribution margin ratio=contribution margin/sales revenue

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