Discussion: The Case of the Busted Blockbuster You have been hired by a law firm representing an author who sold movie rights to a novel to a small studio in exchange for a share of the profits. The movie was wildly successful, but the movie studio has shown financial statements that reflect an overall loss and so refuse to pay the author any royalties. Tiny Movie Studio 12 months ended Dec 31, 20XX Gross receipts Distribution fees 15,000 Print materials 26,000 Dubbing, subtitles, etc. 10,000 Advertising and publicity 45,000 Taxes, duties, customs, and fees 10,000 Trade association fees 4,500 Insurance 6,000 Legal 16,000 Guild, union, and residuals 12,000 Talent 3,895,000 Catering 125,000 Accounting 65,000 Equipment depreciation 100,000 Set construction 625,000 Wardrobe 18,000 $ 6,000,000 Special effects 450,000 Subcontracts 195,000 Staff 1,000,000 Total expenses $ 6,617,500 Net income (loss) $ (617,500) What recommendations would you give to the law firm in order to sort this out? What information would you need? . What do you think are the direct costs? What costs are most likely indirect? How would you propose allocating indirect costs? What objections would you expect from the movie studio and how would you respond to those objections? What other cost accounting issues do you think exist in this scenario? How would your arguments change if you were the accountant for the defense (the movie studio)