close solutoin list

Make-or-buy decision for a service company The Theater Arts Guild of Dailus (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 D 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

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.8EX
Textbook Problem

Make-or-buy decision for a service company

The Theater Arts Guild of Dailus (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 D 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?

Expert Solution

a)

To determine

Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business

To Prepare: The differential analysis of Company TAG-D as on February 22, for given alternatives.

Explanation of Solution

The differential analysis of Company TAG-D as on February 22, for given alternatives is shown below.

Differential Analysis of Company TAG-D
Lay out pages internally (Alt. 1) or Purchase Layout Services (Alt. 2)
February 22
Lay out pages internally  (Alternative 1) Purchase Layout Services (Alternative 2) Differential effect on income
Sales price $0 $0 $0
Unit Costs:
   Purchase price of layout work $0 (1)  (-)  $312,000 (-)  $312,000
   Salaries (-)  $224,000 $0 (-)  $224,000
   Benefits (-)  $36,000 $0 (-)  $36,000
   Supplies (-)  $21,000 $0 (-)  $21,000
   Office Expenses (-)&...
Expert Solution

b)

To determine

To Explain: Whether the Company TAG-D as on February 22, based on the differential analysis purchase the layout services.

Expert Solution

c)

To determine

To Enlist: The other factors to be considered before taking the final decision.

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Chapter 25 Solutions

Accounting
Show all chapter solutions
Ch. 25 - Under what conditions might a company use...Ch. 25 - Lease or sell Duncan Company owns a machine with a...Ch. 25 - Lease or sell Timberlake Company owns equipment...Ch. 25 - Discontinue a segment Product Alpha has revenue of...Ch. 25 - Discontinue a segment Product B has revenue of...Ch. 25 - Make or buy A restaurant bakes its own bread for a...Ch. 25 - Make or buy A company manufactures various sized...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Process or sell Product K is produced for 155 per...Ch. 25 - Process or sell Product D is produced for 24 per...Ch. 25 - Accept business at special price Product AA is...Ch. 25 - Accept business at special price Product A is...Ch. 25 - Product cost markup percentage Light force Inc....Ch. 25 - Product cost markup percentage Green Thumb Garden...Ch. 25 - Bottleneck profit Product A has a unit...Ch. 25 - Bottleneck profit Product K has a unit...Ch. 25 - Activity-based costing Mainline Marine Company has...Ch. 25 - Activity-based costing Casual Cuts Inc. has total...Ch. 25 - Differential analysis for a lease-or-sell decision...Ch. 25 - Differential analysis for a lease-or-buy decision...Ch. 25 - Differential analysis for a discontinued product A...Ch. 25 - Differential analysis for a discontinued product...Ch. 25 - Segment analysis for a service company Charles...Ch. 25 - Decision to discontinue a product On the basis of...Ch. 25 - Make or buy decision Diamond Computer Company has...Ch. 25 - Make-or-buy decision for a service company The...Ch. 25 - Machine replacement decision A company is...Ch. 25 - Differential analysis for machine replacement Kim...Ch. 25 - Sell or process further Big Fork Lumber Company...Ch. 25 - Sell or process further Rise N Shine Coffee...Ch. 25 - Decision on accepting additional business...Ch. 25 - Accepting business at a special price Portable...Ch. 25 - Dedsion on accepting additional business...Ch. 25 - Accepting business at a special price for a...Ch. 25 - Product cost concept of product pricing La Femme...Ch. 25 - Product cost concept of product costing Smart...Ch. 25 - Target costing Toyota Motor Corporation uses...Ch. 25 - Target costing Instant Image Inc. manufactures...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Activity-based costing CardioTrainer Equipment...Ch. 25 - Activity-based costing Zeus Industries...Ch. 25 - Activity rates and product costs using...Ch. 25 - Total cost concept of product pricing Based on the...Ch. 25 - Variable cost concept of product pricing Based on...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Product pricing using the cost-plus approach...Ch. 25 - Product pricing and profit analysis with...Ch. 25 - Activity-based costing Pure Cane Sugar Company...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Product pricing using the cost-plus approach...Ch. 25 - Product pricing and profit analysis with...Ch. 25 - Activity-based costing Southeastern Paper Company...Ch. 25 - Ethics in Action Aaron McKinney is a cost...Ch. 25 - Communication The following conversation took...Ch. 25 - Decision on accepting additional business A...Ch. 25 - Accept business at a special price for a service...Ch. 25 - Identifying product cost distortion Peachtree...

Additional Business Textbook Solutions

Find more solutions based on key concepts
Show solutions
Use a production possibilities frontier to describe the idea of efficiency.

Principles of Microeconomics (MindTap Course List)

What is job analysis?

Foundations of Business (MindTap Course List)

How is the price elasticity of supply calculated? Explain what it measures.

Principles of Macroeconomics (MindTap Course List)

Describe the transactions that are recorded in the following equation:

College Accounting (Book Only): A Career Approach

Does interest rate parity imply that interest rates are the same in all countries?

Fundamentals of Financial Management (MindTap Course List)

YIELD TO MATURITY Heymann Company bonds have 4 years left to maturity. Interest is paid annually, and the bonds...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)