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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Make-or-buy decision
Wisconsin Arts of Milwaukee employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, and other publications for the 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 $9.50 per layout page. The budget for the Publication Department is as follows:

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.
b.On the basis of your analysis in part (a), should the page layout work be purchased from an outside company?
c.What additional considerations might factor into the decision making?

To determine

(a)

Concept Introduction:

Differential Analysis Report:

This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem.

Make or Buy decisions:

In this, the company will try to determine whether the company should manufacture the product in house or to purchase it from aoutsider party. The net inflow of this analysis should be a decision that maximizes the long-term financial gain for the company.

To Prepare:

The differential analysis report for the make or buy decisions.

Explanation

If department wants to print it in house, then cost per layout is:

    ParticularAmount
      ($)
    Salaries1,85,000
    Benefit50,000
    Supplies30,000
    Office Expenses25,000
To determine

(b)

Concept Introduction:

Differential Analysis Report:

This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem.

Make or Buy decisions:

In this, the company will try to determine whether the company should manufacture the product in house or to purchase it from an outsider party. The net inflow of this analysis should be a decision that maximizes the long-term financial gain for the company.

The best suitable option for the company either make the product or buy.

To determine

(c)

Concept Introduction:

Differential Analysis Report:

This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem.

Make or Buy decisions:

In this, the company will try to determine whether the company should manufacture the product in house or to purchase it from an outsider party. The net inflow of this analysis should be a decision that maximizes the long-term financial gain for the company.

The additional consideration that might affect the decision making.

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