The Case of the Busted Blockbuster you have been hired by a law firm representing an author who sold movie rights to a novel to a small studio in exchange for a share of the profits. The movie was wildly successful, but the movie studio has shown financial statements that reflect an overall loss and so refuse to pay the author any royalties.Tiny Movie Studio12 months ended Dec 31, 20XXGross receipts

$ 6,000,000Distribution fees

15,000Print materials

26,000Dubbing, subtitles,

etc. 10,000Advertising and publicity 45,000

Taxes, duties, customs, and fees 10,000Trade association fees

4,500 nsurance

6,000 Legal

16,000 Guild, union, and residuals

12,000 Talent

3,895,000 Catering

125,000 Accounting

65,000 Equipment depreciation

100,000 Set construction

625,000 Wardrobe

18,000 Special effects

450,000 Subcontracts

195,000 Staff

1,000,000 Total expenses

$ 6,617,500Net income (loss) $ (617,500)

● What recommendations would you give to the law firm in order to sort this out?

● What information would you need?

● What do you think are the direct costs? What costs are most likely indirect?

● How would you propose allocating indirect costs?

● What objections would you expect from the movie studio and how would you respond tothose objections?

● What other cost accounting issues do you think exist in this scenario?

● How would your arguments change if you were the accountant for the defense