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 is quoting a price of $13 per layout page. The budget for the Publication Department for the current year is as follows:

Salaries $224,000
Benefits 36,000
Supplies 21,000
Office expenses 39,000
Office depreciation 28,000
Computer depreciation 24,000
Total $372,000

The department expects to lay out 24,000 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 "0".

Differential Analysis
Lay Out Pages Internally (Alt. 1) or Purchase Layout Services (Alt. 2)
February 22
Lay Out
Pages
Internally
(Alternative 1)
Purchase
Layout
Services
(Alternative 2)


Differential
Effects
(Alternative 2)
Costs:
Purchase price of layout work 0 -312,000 -312,000
Salaries -224,000 0 224,000
Benefits -36,000 0 36,000
Supplies -21,000 0 21,000
Office expenses -39,000 0 39,000
Office depreciation not a blank it is not 28,000 0
Computer depreciation not a blank it is not 24,000 0
Total costs it is not 372,000 it is not 364,000 8,000

Please help with the ones that were marked wrong. I also put a - in front and it shows that it is not right.

Homework Answers

Answer #1

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 -$3,12,000 -$3,12,000
Salaries -$2,24,000 $0 $2,24,000
Benefits -$36,000 $0 $36,000
Supplies -$21,000 $0 $21,000
Office expenses -$39,000 $0 $39,000
Office depreciation -$28,000 -$28,000 $0
Computer depreciation -$24,000 -$24,000 $0
Income (loss) -$3,72,000 -$3,64,000 $8,000

b.

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