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 $13 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 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter "0".

Differential Analysis
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 Effects (Alternative 2)
Costs:
Purchase price of layout work	$fill in the blank 02a450fd2fd3057_1	$fill in the blank 02a450fd2fd3057_2	$fill in the blank 02a450fd2fd3057_3
Salaries	fill in the blank 02a450fd2fd3057_4	fill in the blank 02a450fd2fd3057_5	fill in the blank 02a450fd2fd3057_6
Benefits	fill in the blank 02a450fd2fd3057_7	fill in the blank 02a450fd2fd3057_8	fill in the blank 02a450fd2fd3057_9
Supplies	fill in the blank 02a450fd2fd3057_10	fill in the blank 02a450fd2fd3057_11	fill in the blank 02a450fd2fd3057_12
Office expenses	fill in the blank 02a450fd2fd3057_13	fill in the blank 02a450fd2fd3057_14	fill in the blank 02a450fd2fd3057_15
Office depreciation		fill in the blank 02a450fd2fd3057_16	fill in the blank 02a450fd2fd3057_17
Computer depreciation		fill in the blank 02a450fd2fd3057_18	fill in the blank 02a450fd2fd3057_19
Total costs	$fill in the blank 02a450fd2fd3057_20	$fill in the blank 02a450fd2fd3057_21	$fill in the blank 02a450fd2fd3057_22

b. The benefit from using an outside service is shown to be than performing the layout work internally. The fixed costs (depreciation expenses) in the budget are to the decision. Thus, the work should purchased from the outside on a strictly financial basis.

c. Before electing to the five employees, the TAG-D should consider the of the decision.