Pixel Studio, Inc, is a small company that creates computer-generated animations for Sims and televi sion. Much of the company's work consists of short commercials for television, but the company also does reallistic computer animations for special effects in movies The youne founders of the company have become increasingy concerned with the economics of the business-particularly since To help understand the company's cost structure, an activity-based sorung up recently in the local area out in the company animation concept, animation projects. Thisis an intensive activity that to the prospective client. Once a project is accepted by the client, the animation technical staf, where as the administrative stalfislargey costing system has been designed. Three major activities are carried out in the The animation concept activity is carried out at the contract proposal stage when the company bids on ompany in cre ating story boards and prototype sills tobe shown involves individuals from all parts of the c epes into production and contract adiministration begins. Almost all of the work inwolved in animation production is done by the responsible for centract administration The activity costpools and their activity measures are listed below 10 Activity Cost Pool 11 Animation concept Activity Meacure Activity Rate Number of proposals Mnutes of completed animation Number of contracts 6,040 $ 7,725 s 6,800 oer proposal per minute Contract administration (ontract costs except for its orgenisetion-sustaining costs and idile capecity costs There ore no direct lebor or direct materials cests Preliminary analynisusing these activity rates has indicated that the commercials may ask three or four companies like Pixel Studio to bid, which resultsin much shorter for local commercials than for other work." Snce Mimation work ibled wmy tnir-nel local commencial segment of the market may he unprofitable. This segment is highly competitive.Producersoflocal an unuwualily low ratio of accepted contracts to bids. Furthermore, the animation sequences tend to be animation work is billed at alrly standard rates ccording to the running time of the completed animation, this means that tohe 18 revenues fom these short projects tend to be below average Data concerning ctivity in the local cemmerciad market opew below 19 20 21 Local Commercials Activity Measure Number of proposa Minutes of cempleted animation Number of contracT 25 23 24 26 The total sales from the 10 contracts for local commercilals was $180,000 8 Required 29 I. Colculate the cost of serving the local commercial morket 2 2.Colculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct lobor costs)