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 production. 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 $18.00 per layout page. The budget for the Publication Department is as follows:

Salaries	$183,000
Benefits	53,000
Supplies	33,000
Office expenses	23,000
Office depreciation	42,800
Computer depreciation	28,500
Total	$363,300

The department expects to lay out 26,400 pages. The computers used by the department have an estimated residual value of $19,000. The Publication Department office space would be used for future administrative needs if the department's function were purchased from the outside.

Question Content Area

a. Prepare a differential analysis report for the make-or-buy decision, considering the differential revenues and costs.

WISCONSIN ARTS OF MILWAUKEE Purchase Outside Page Layout Services Differential Analysis Report

Differential revenue:
Residual value of computer equipment		$fill in the blank fad033fd1018007_1
Differential cost of alternatives:
Purchase price of layout work:
Number of pages	fill in the blank fad033fd1018007_2
Price per page	$fill in the blank fad033fd1018007_3
Total differential costs		$fill in the blank fad033fd1018007_4
Cost to perform internally:
Salaries	$fill in the blank fad033fd1018007_5
Benefits	fill in the blank fad033fd1018007_6
Supplies	fill in the blank fad033fd1018007_7
Office expenses	fill in the blank fad033fd1018007_8	fill in the blank fad033fd1018007_9
Cost increase from purchasing outside layout servicesCost savings from purchasing outside layout services		$- Select -
Net differential income from using an outside serviceNet differential loss from using an outside service		$- Select -

Question Content Area

b. Which costs are irrelevant to the Wisconsin Arts decision?

1. The residual value of the computers
2. The office depreciation
3. The computer depreciation
4. The service price to the outside company

Select the irrelevant cost(s) from above choices.

1 only1, 2, and 32 and 3 only3 only

c. What additional considerations are relevant to the Wisconsin Arts decision?

1. The impact on employees
2. Potential customer dissatisfaction with the work done by the outside service
3. Loss of direct control over the quality and timing of the layout work
4. The possibility that future layout rates could grow faster than the cost of internal salaries

Select the relevant consideration(s) from the list above.

1 only1, 2, and 32 and 3 only3 only1, 2, 3 and 4