Plxel Studio, Incorporated, creates computer$-$generated anImations for films and television. Much of the company's work consists of

short commerclals for television, but the company also does realistic computer animations for special effects in movles.

The company's owners created an activity$-$based costing system to better understand their costs in the face of growing competition. It

Includes three activities: anImation concept, anImation production, and contract administration. The anImation concept activity Is

carrled out at the contract proposal stage when the company bids on projects. This is an Intensive activity Involving Indlviduals from all

parts of the company in creating story boards and prototype stills to be shown to the prospectlve cllent. Once a project is accepted by

the client, the animation goes into production and contract administration begins. Almost all of the work Involved in animation

production is done by the technical staff, whereas the administrative staff is largely responsible for contract administration. The activity

cost pools and thelr actlivity measures are listed below:

Activity Cost Pool

Animation concept

Animation production

Contract administration

Activity Measure

Number of proposals

Minutes of completed animation

Number of contracts

Activity Rate

$$6,100$ per proposal

$$7,50$ per minute

$$6,100$ per contract

These actlvity rates include all of the company's costs, except for Its organization$-$sustaining costs and Idle capacity costs. There are no

direct labor or direct materlals costs.

Preliminary analysis using these activity rates Indicates the local commerclal segment of the market may be unprofitable. Producers of

local commerclals usually ask three or four companles like Plxel Studio to bid, which results in an unusually low ratio of accepted

contracts to bids. Furthermore, the anImation sequences are shorter for local commerclals than for other work. Because animation

work is billed at falrly standard rates according to the running time of the completed animation, this means the revenues from these

short projects tend to be below average. Actlvity data concerning the local commerclal market appear below:

Local

Activity Measure

Number of proposals

Minutes of completed animation

Commercials

Number of contracts

$15$

$13$

$6$

The total sales from the $6$ contracts for local commerclals was $$250,000.$

Requlred:

Calculate the cost of serving the local commerclal market.

Calculate the margin earned serving the local commerclal market. $($Remember$,$ this company has no direct materials or direct labor

costs.$)$

Complete this question by entering your answers in the tabs below.

Calculate the cost of serving the local commercial market.

Cost of serving the local commercial market