Question

Make-or-Buy Decision for a Service Company The Theater Arts Guild of Dallas (TAG-D) employs five people...

Make-or-Buy Decision for a Service Company

The Theater Arts Guild of Dallas (TAG-D) employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, magazines, and other publications for the TAG-D productions. The pages are delivered to an outside company for printing. The company is considering an outside publication service for the layout work. The outside service quoting a price of $21 per layout page. The budget for the Publication Department for the current year is as follows:

Salaries $263,300
Benefits 59,900
Supplies 31,900
Office expenses 39,900
Office depreciation 35,900
Computer depreciation 23,900
Total $454,800

The department expects to lay out 19,000 pages for the current year. The Publication Department office space and equipment would be used for future administrative needs, if the department’s function were purchased from the outside.

a. Prepare a differential analysis dated February 22 to determine whether TAG-D should lay out pages internally (Alternative 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis
Lay out Pages Internally (Alt. 1) or Purchase Lay out Services (Alt. 2)
February 22
Lay out Pages Internally (Alternative 1) Purchase Lay out Services (Alternative 2) Differential Effect on Income (Alternative 2)
Selling Price $0 $0 $0
Costs:
Purchase price of lay out work $ $ $
Salaries
Benefits
Supplies
Office expenses
Office depreciation
Computer depreciation
Income (loss) $ $ $

Homework Answers

Answer #1

Solution a:

Differential Analysis
Lay out Pages Internally (Alt. 1) or Purchase Lay out Services (Alt. 2)
Feb-22
Lay out Pages Internally (Alternative 1) Purchase Lay out Services (Alternative 2) Differential Effect on Income (Alternative 2)
Selling Price $0 $0 $0
Costs:
Purchase price of lay out work $0 $3,99,000 -$3,99,000
Salaries $2,63,300 $0 $2,63,300
Benefits $59,900 $0 $59,900
Supplies $31,900 $0 $31,900
Office expenses $39,900 $0 $39,900
Office depreciation $35,900 $35,900 $0
Computer depreciation $23,900 $23,900 $0
Income (loss) -$4,54,800 -$4,58,800 -$4,000
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