Pixel Studio, Incorporated, 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 realistic computer animations for special effects in movies. The company's owners created an activity-based costing system to better understand their costs in the face of growing competition. It includes three activities: 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 involving 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 Animation concept Animation production Contract administration Activity Measure Number of proposals Minutes of completed animation Number of contracts Activity Rate $ 6,100 per proposal $ 7,500 per minute $ 6,100 per contract These activity rates include all of the company's costs, except for its organization-sustaining costs and idle capacity costs. There are no direct labor or direct materials costs. Preliminary analysis using these activity rates indicates the local commercial segment of the market may be unprofitable. Producers of local commercials usually 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 are shorter for local commercials than for other work. Because animation work is billed at fairly standard rates according to the running time of the completed animation, this means the revenues from these short projects tend to be below average. Activity data concerning the local commercial market appear below: Activity Measure Number of proposals Minutes of completed animation Number of contracts Local Commercials 15 13 6 The total sales from the 6 contracts for local commercials was $250,000. Required: 1. Calculate the cost of serving the local commercial market. 2. Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct labor costs.) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct labor costs.) Animation concept Costs: Profitability Analysis Animation production Contract administration 0 $ 0 < Required 1 Required 2 >