Pixel Studio, Inc., is a small company that creates computer-generated animations for films and television. Much of the companys work consists of short commercials for television, but the company also does realistic computer animations for special effects in movies.

The young founders of the company have become increasingly concerned with the economics of the businessparticularly since many competitors have sprung up recently in the local area. To help understand the companys 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 animation concept activity is carried out at the contract proposal stage when the company bids on projects. This is an intensive activity that involves individuals from all parts of the company in creating story boards and prototype stills 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 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 their activity measures are listed below:

Activity Cost Pool Activity Measure Activity Rate

Animation concept Number of proposals $ 7,080 per proposal

Animation production Minutes of completed animation $ 7,770 per minute

Contract administration Number of contracts $ 5,890 per contract

These activity rates include all of the companys costs, except for the costs of idle capacity and organization-sustaining costs. There are no direct labor or direct materials costs.

Preliminary analysis using these activity rates has indicated that the local commercial segment of the market may be unprofitable. This segment is highly competitive. Producers of local commercials may ask three or four companies like Pixel 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 local commercials than for other work. Since animation work is billed at fairly standard rates according to the running time of the completed animation, this means that the revenues from these short projects tend to be below average. Data concerning activity in the local commercial market appear below:

Activity Measure Local Commercials

Number of proposals 18

Minutes of animation 13

Number of contracts 9

The total sales from the 9 contractors for local commercials amounted was $140,000.

In addition, the company has provided the following details concerning its activity rates:

Activity Rates

Animation Concept Animation Production Contract Administration

Technical staff salaries $ 4,300 $ 4,600 $ 900

Animation equipment depreciation

650

2,000

0

Administrative wages and salaries

1,600

250

4,800

Supplies costs

290

560

120

Facility costs

240

360

70

Total $ 7,080 $ 7,770 $ 5,890

Management has provided the following ease of adjustment codes for the various costs:

Ease of Adjustment Code

Technical staff salaries Red

Animation equipment depreciation Red

Administrative wages and salaries Yellow

Supplies costs Green

Facility costs Red

These codes created some controversy. In particular, some administrators objected to coding their own salaries Yellow, while the technical staff salaries were coded Red. However, the founders of the firm overruled these objections by pointing out that our technical staff is our most valuable asset. Good animators are extremely difficult to find, and they would be the last to go if we had to cut back.

Plz write in the format !

Required 1. Determine the cost of the local commercials market. (Think of the local commercials market as a product.) Activity Rates Animation Animation Contract Concept Production Administration 18 proposals 13 minutes 9 contracts Total Activity level Technical staff salaries Animation equipment depreciation Administrative wages and salaries Supplies costs Facility costs Total cost 2. Prepare an action analysis report concerning the local commercial market. (This company has no diredct materials or direct labor costs.) Green costs Yellow costs: Red costs