Pixel Studio, Inc., Is a small company that creates computer-generated animations for films and televislon. Much of the company's work consists of short commercials for television, but the company also does realistic computer animations for speclal effects In movles. The young founders of the company have become increasingly concerned with the economics of the business-particularly since many competitors 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 activitles are carried out in the company: animation concept, animation production, and contract ad ministration. The animation concept activity Is carrled 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 cllent, 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 thelr activity measures are listed below Activity Cost Pool Animation concept Animation production Activity Measure Number of proposals Minutes of completed animation Number of contracts Activity Rate $6,500 per proposal $6,800 per minute $5,800 per contract Contract administration These activity rates Include all of the company's costs, except for the costs of Idle capacity and organization- sustaining costs. There are no direct labor or direct materlals costs. Preliminary analysis using these activity rates has Indicated that the local commercial segment of the market may be unprofitable. This segment is highly competitive. Producers of local commercials may ask three or four companies like Pixel Studio to bid, which results In an unusually low ratio of accepted contracts to bids. Furthermore, the animation sequences tend to be much shorter for local commercials than for other work Since animation work Is billed at fairly standard rates according to the running time of the completed animation, this means that the revenues from these short projects tend to be below average. Data concerning activity In the local commercial market follow Activity Measure Number of proposals Minutes of completed animation Number of contracts Local Commercials 24 13 4 value: 5.00 points Requirement 1: Determine the cost of serving the local commercial market. (Omit the "$" sign in your response.) Activity Cost Pool Animation concept ABC Cost $ Animation production Contract administration Total Cost value: 5.00 points Requirement 2: Compute the margin of the local commercial market. (Remember, this company has no direct materials or direct labor costs.) (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) Margin earned