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.
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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