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.

8 01.29-43

eBook

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

Number of proposals

Minutes of completed animation

Number of contracts

Local

Commercials

23

15

The total sales from the 9 contracts for local commercials was $320.000.

Required:

Calculate the cost of serving the local commercial market.

Calculate the margin earned serving the local commercial market. (Remember, this company has no direct materials or direct labor