FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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  1. 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 $16 per layout page. The budget for the Publication Department for the current year is as follows:

    Salaries $274,600
    Benefits 62,400
    Supplies 33,300
    Office expenses 41,600
    Office depreciation 37,400
    Computer depreciation 25,000
    Total $474,300

    The department expects to lay out 26,000 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 layout pages internally (Alternative 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter "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 Layout Services (Alt. 2)
    February 22
      Lay out
    Pages
    Internally
    (Alternative 1)
    Purchase
    Lay out
    Services
    (Alternative 2)
    Differential
    Effect
    on Income
    (Alternative 2)
    Sales price $ $ $
    Costs:      
    Purchase price of lay out work $ $ $
    Salaries      
    Benefits      
    Supplies      
    Office expenses      
    Office depreciation      
    Computer depreciation      
    Income (loss) $ $ $

    b.  The benefit from using an outside service is shown to be   than performing the layout work internally. The fixed costs (depreciation expenses) in the budget are   to the decision. Thus, the work should   purchased from the outside on a strictly financial basis.

    c.  Before electing to   the five employees, the Guild should consider the   of the decision.

 
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