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 513 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 I) or purchase layout services from the outside (Alternative 2). B. On the basis of your analysis in part (A), should the page layout work be purchased from an outside company? Explain. C. What additional considerations might factor into the decision making?

BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

Solutions

Chapter
Section
Chapter 24, Problem 24.8EX
Textbook Problem

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 513 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.

  1. A. Prepare a differential analysis dated February 22 to determine whether TAG-D should lay out pages internally (Alternative I) or purchase layout services from the outside (Alternative 2).
  2. B. On the basis of your analysis in part (A), should the page layout work be purchased from an outside company? Explain.
  3. C. What additional considerations might factor into the decision making?

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Chapter 24 Solutions

Financial & Managerial Accounting
Ch. 24 - Lease or sell McFadden Company owns equipment with...Ch. 24 - Discontinue a segment Product AG52 has revenue of...Ch. 24 - Make or buy A company manufactures various-sized...Ch. 24 - Replace equipment A machine with a book value of...Ch. 24 - Process or sell Product J19 is produced for 11 per...Ch. 24 - Accept business at special price Product A is...Ch. 24 - Product cost markup percentage Green Thumb Garden...Ch. 24 - Bottleneck profit Product K has a unit...Ch. 24 - Differential analysis for a lease or sell decision...Ch. 24 - Differential analysis for a lease or buy decision...Ch. 24 - Differential analysis for a discontinued product A...Ch. 24 - Differential analysis for a discontinued product...Ch. 24 - Segment analysis for a Service company Charles...Ch. 24 - Decision to discontinue a product On the basis of...Ch. 24 - Make-or-buy decision Fremont Computer Company has...Ch. 24 - Make-or-buy decision for a service company The...Ch. 24 - Machine replacement decision A company is...Ch. 24 - Differential analysis for machine replacement Kim...Ch. 24 - Sell or process further Calgary Lumber Company...Ch. 24 - Sell or process further Rise N Shine Coffee...Ch. 24 - Decision on accepting additional business...Ch. 24 - Accepting business at a special price Portable...Ch. 24 - Decision on accepting additional business...Ch. 24 - Product cost method of product pricing La Femme...Ch. 24 - Product cost method of product costing Smart...Ch. 24 - Target costing Toyota Motor Corporation uses...Ch. 24 - Target costing Instant Image Inc. manufactures...Ch. 24 - Product decisions under bottlenecked operations...Ch. 24 - Product decisions under bottlenecked operations...Ch. 24 - Appendix Total cost method of product pricing...Ch. 24 - Appendix Variable cost method of product pricing...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Product pricing using the cost-plus approach...Ch. 24 - Product pricing and profit analysis with...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Appendix Product pricing using the cost-plus...Ch. 24 - Product pricing and profit analysis with...Ch. 24 - Service yield pricing and differential analysis...Ch. 24 - Service yield pricing Valley Power Company uses...Ch. 24 - Service yield pricing and differential analysis...Ch. 24 - Ethics in Action Aaron McKinney is a cost...Ch. 24 - Communication The following conversation took...

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