Make-or-Buy Decision for a Service Company The Theater Arts Guild of Dallas (TAG

Question

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:

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.

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

Explanation / Answer

                                     Differential Analysis

              Layout Pages Internally (Alternative1) or puchase Layout Services (Alternative 2)

                                                             Feburary 2

Layout Pages Internally

Purchase Layout Service

(Alternative 2)

Differencial Effect on Income

(Alternative 2)

Purchase Price of Layoyt Work

(19000*21)

Conclusion:-Company will require to Layout pages internally (Alternative 1)

Layout Pages Internally

(Alternative 1)

Purchase Layout Service

(Alternative 2)

Differencial Effect on Income

(Alternative 2)

SP $0 $0 $0 Cost:-

Purchase Price of Layoyt Work

(19000*21)

$0 -$399000 -$399000 Salaries -$263300 $0 $263300 Benefits -$59900 $0 $59900 Supplies -$31900 $0 $31900 Office Expenses -$39900 $0 $39900 Office Depreciation $0 $0 0 Computer Depreciation $0 $0 0 Income(Loss) -$395000 -$399000 -$4000

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