Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pixel 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

image text in transcribed
image text in transcribed
Pixel 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 realistic 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 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 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 $ 6,700 per proposal Animation production Minutes of completed animation 5 7,800 per minute Contract administration Number of contracts $ 7.200 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 hos 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: HUME www. Check my work www 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 OM nt Local Activity Measure Commercials Number of proposals 14 Minutes of completed animation 13 Number of contracts The total sales from the contracts for local commercials was $190,000 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. ences Required 1 Required 2 Calculate the cost of serving the local commercial market Cost of serving the local commercial market Required 2 >

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Fundamentals

Authors: John J. Wild

8th Edition

1260728609, 9781260728606

More Books

Students also viewed these Accounting questions

Question

Who do you know that is a member of a microcultural group?

Answered: 1 week ago