Pixel Studio, Incorporated, is a small company that creates computer-generated animations for films and television. Much of thecompany's work consists of short commercials for television, but the company also does realistic computer animations for specialeffects in movies.The young founders of the company have become Increasingly concerned with the economics of the business-particularly sincemany competitors have sprung up recently in the local area. To help understand the company's cost structure, an activity-basedcosting system has been designed. Three major activities are carried out in the company: animation concept, animation production,and contract administration. The animation concept activity is carried out at the contract proposal stage when the company bids onprojects. This is an Intensive activity that involves individuals from all parts of the company in creating story boards and prototype stillsto be shown to the prospective client. Once a project is accepted by the client, the animation goes into production and contractadministration begins. Almost all of the work involved in animation production is done by the technical staff, whereas the administrativestaff is largely responsible for contract administration. The activity cost pools and their activity measures are listed below.Activity Cost PoolAnimation conceptAnimation productionContract administrationActivity MeasureNumber of proposalsThese activity rates include all of the company's costs, except for its organization-sustaining costs and idle capacity costs. There are nodirect labor or direct materials costs.Minutes of completed animationNumber of contractsPreliminary analysis using these activity rates has indicated that the local commercial segment of the market may be unprofitable. Thissegment is highly competitive. Producers of local commercials may ask three or four companies like Pixel Studio to bid, which resultsIn an unusually low ratio of accepted contracts to bids. Furthermore, the animation sequences tend to be much shorter for localcommercials than for other work. Since animation work is billed at fairly standard rates according to the running time of the completedanimation, this means that the revenues from these short projects tend to be below average. Data concerning activity in the localcommercial market appear below:Required 1 Required 2Activity MeasureNumber of proposals15Minutes of completed animation15Number of contracts5The total sales from the 5 contracts for local commercials was $270,000.SalesCosts:Required:1. Calculate the cost of serving the local commercial market.2. Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct laborcosts.)Complete this question by entering your answers in the tabs below.Animation conceptAnimation productionContract administrationLocalCommercialsCalculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or directlabor costs.)Profitability AnalysisActivity Rate$6,880 per proposal$ 7,400 per minute$ 7,188 per contract$ 102,000111,00035,500$ 270,000248,500$ 21,500

The total cost of the product is the cost of producing or manufacturing the product, hence it…

Required: Calculate the cost of serving the local commercial market. 2. Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct labor costs.)

Required: Calculate the cost of serving the local commercial market. 2. Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct labor costs.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hi! Can you please differentiate the cost flow in a Service, Merchandising and Manufacturing Business? Thank you?