Pixel Studio, Inc., is a small company that creates computer-generated animation
ID: 2570278 • Letter: P
Question
Pixel Studio, Inc., 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 aiso does realistic computer animations for special efects in movies The young founders of the company have become increasingly concemed with the economics of the business-partcularty since many compettors have sprung up recently in the local area. To help understand th company's cost structure, an activity-based costing system has been designed. Three major activities are carmied out in the company: animation concept, animation production, and contract administrabon. The anr aton concept activey s carried ot at the contract proposal stage when the oompany bds on proyects Tha a an nenave actory that moves nandais tom aa part recom y in asaang story teara and prototype stils production is done by the technical staff, whereas the administrative staf is to be shown to the prospective client Once a project is accepted by the dlient, the animation goes into production and contract administration begins. Almost all of the work involved in animation largely responsible for contract administraion. The activity cost pools and their activity measures are lissted below inutes of Number of contracts 6,600 per proposal 7000 per minute $ 5,700 per oontract Contract administraion These activity rates include all of the company's costs, excet for the costs of idle capacity and organization-sustaining costs. There are no direct labor or direct materials costs. Prelminary analysis using these activity rates has indicated that the local four companies like Pixel Shudio t commercial segment of the market may be unprofitable. This segment is highly compettive. Producers of local commercials may ask three animation sequences tend to be much shorter for local commercials than for cther work o bid, which resuilts in an unusually low ratio of accepted contracts to bids. Furthermore, the animaton work is billed at tairty standard rates according to the running time of the completed animation, this means that the revenues from these short projects tend to be below Since activity in the local commercial market appear below average. Data conceming Local 12 Number of contracts The total sales from the 10 contracts for local commercials was $190,000 Required: Determine the cost of serving the local commercial marketExplanation / Answer
Animation concept 132000 =20*6600 Animation production 84000 =12*7000 Contract administration 68400 =12*5700 Cost of serving 284400