Pikel Studio, incorporated, is a small company that creates computer-generated animations for films and television. Much of the company's work consists of short commercials for television, but the company also does reafistic computer animations for special effects in movies. The young founders of the company have become increasingly concerned with the economics of the business-particularly since many compethors have sprung up recently in the local area. To help understand the company's cost structure, an activity-based costing system has been designed. Three major activities are carried out in the company: animation concept, animation production, and contract administration. The animator concept activity is corried out at the contract proposal stage when the compony bids on projects. This is an intenslve activity that involves individuals from all parts of the company in creoting story boards and prototype stilis to be shown to the prospective client. Once a project is accepted by the client, the animation goes into production and contract administration begins. Almost all of the work impolved in animation production is done by the techuical stafl, whereas the administrative staff is largely tesponsible for contract administration. The activity cost pools and their activity measures are listed below These activity rates inciude all of the companyss costs, except for its organization-sustaining costs and idlo copacity costs. There are no drect labor oc direct materials costs. Preiminory analysis using these activity rafes has indicated that the local commercial segment of the market rmay be unprofitable: This segment is highly competitive. Producers of local commercials may ask three or four companies like Plxel Studio to bid, which results in an unusually low ratio of accepted contracts to bids. Furthermore, the animation sequences tend to be much shorter for locat commercials than for other work. Since animation work is billed at fairly standard rates according to the running time of the completed animasion, this means that the revenues from theset short projects tend to be below average, Data concerning activity in the lacal commercial masket appear helow: The total sales from the 10 contracts for local commercials was $180.000. Required: 1. Caiculate the cost of serving the local commerclat market. 2. Calculate the margin earned serving the local commerclal market. \{Remember, this company has no direct materiais or direct labor costs.)