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)	$14,218
Home Box Office (pay television)	12,014
Warner Bros. (films, television, and videos)	3,478

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

Turner	36%
Home Box Office	33%
Warner Bros.	74%

Amount Descriptions
Contribution margin
Contribution margin ratio
Fixed costs
Income from operations
Revenues
Variable costs

a. Determine the contribution margin and contribution margin ratio for each segment from the information given. Enter amounts in millions rounded to whole amount. Round contribution margin ratios to whole percents for each segment from the above information. Enter all amounts as positive numbers. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

1		Turner	Home Box Office	Warner Bros.
2
3
4
5

b. Does the segment with the highest contribution margin in (a) mean that it is the most profitable segment with the highest operating income?

Yes

No

Answer 1

a
	Turner	Home Box Office	Warner Bros.
Revenues	14218	12014	3478
Variable costs	5118	3965	2574
Contribution margin	9100	8049	904
Contribution margin ratio	64%	67%	26%
b
No, the highest contribution margin does nit mean that it is the most profitable segment
Alternatively, without rounding off:
	Turner	Home Box Office	Warner Bros.
Revenues	14218.00	12014.00	3478.00
Variable costs	5118.48	3964.62	2573.72
Contribution margin	9099.52	8049.38	904.28
Contribution margin ratio	64%	67%	26%