Make-or-Buy Decision The department expects to lay out 30,000 pages. The compute
ID: 2456726 • Letter: M
Question
Make-or-Buy Decision
The department expects to lay out 30,000 pages. The computers used by the department have an estimated residual value of $6,500. The Publication Department office space would be used for future administrative needs, if the department's function were purchased from the outside.
a. Prepare a differential analysis report for the make-or-buy decision, considering the differential revenues and costs. Enter differential revenues and cost savings as positive amounts; enter differential expenses and cost increases as negative amounts.
Wisconsin Arts of Milwaukee
Proposal to Purchase Outside Page Layout Services
Differential revenue:
Salvage of computer equipment
Differential expenses:
Purchase price of layout work:
Number of pages
Price per page
Total differential costs
Differential internal cost savings:
Salaries
Benefits
Supplies
Office expenses
b. Which costs are irrelevant to the Wisconsin Arts decision?
The residual value of the computers
The office depreciation
The computer depreciation
The service price to the outside company
Select the irrelevant cost(s) from above choices.
_________________
c. What additional considerations are relevant to the Wisconsin Arts decision?
The impact on employees
Potential customer dissatisfaction with the work done by the outside service
Loss of direct control over the quality and timing of the layout work
The possibility that future layout rates could grow faster than the cost of internal salaries
Select the relevant consideration(s) from the list above.
_________________
a. Prepare a differential analysis report for the make-or-buy decision, considering the differential revenues and costs. Enter differential revenues and cost savings as positive amounts; enter differential expenses and cost increases as negative amounts.
Wisconsin Arts of Milwaukee
Proposal to Purchase Outside Page Layout Services
Differential revenue:
Salvage of computer equipment
$Differential expenses:
Purchase price of layout work:
Number of pages
Price per page
x $Total differential costs
$Differential internal cost savings:
Salaries
$Benefits
Supplies
Office expenses
$ $Explanation / Answer
1)
b)
The correct answer is option is option B.
Office depreciation is irrelevant as it should be incurred irrespective of the change in the production.
c)
All the above considerations are relevant to take the decisions as they are non monetary considerations that need to be taken care of before forming a decision
Lay Out Pages Internally (Alternative 1) Purchase Layout Services (Alternative 2) Differential Effect on Income (Alternative 2) ( B-A) Revenues Salvage of computer equipment 6500 6500 Costs Purchase price of layout work 0 -375000 -375000 Salaries -185000 0 185000 Benefits -50000 0 50000 Supplies -30000 0 30000 Office expenses -25000 0 25000 Office depreciation -70000 -70000 0 Computer depreciation -18000 0 18000 Income (Loss) -60500Related Questions
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