Make-or-Buy Decision for a Service Company

The Theater Arts Guild of Dallas (TAG-D) employs five people inits Publication Department. These people lay out pages forpamphlets, brochures, magazines, and other publications for theTAG-D productions. The pages are delivered to an outside companyfor printing. The company is considering an outside publicationservice for the layout work. The outside service quoting a price of$21 per layout page. The budget for the Publication Department forthe current year is as follows:

Salaries	$263,300
Benefits	59,900
Supplies	31,900
Office expenses	39,900
Office depreciation	35,900
Computer depreciation	23,900
Total	$454,800

The department expects to lay out 19,000 pages for the currentyear. The Publication Department office space and equipment wouldbe used for future administrative needs, if the department’sfunction were purchased from the outside.

a. Prepare a differential analysis datedFebruary 22 to determine whether TAG-D should lay out pagesinternally (Alternative 1) or purchase layout services from theoutside (Alternative 2). If an amount is zero, enter "0". For thoseboxes in which you must enter subtracted or negative numbers use aminus sign.

Differential Analysis
Lay out Pages Internally (Alt. 1) or Purchase Layout Services (Alt. 2)
February 22
	Lay out Pages Internally (Alternative 1)	Purchase Lay out Services (Alternative 2)	Differential Effect on Income (Alternative 2)
Selling Price	$0	$0	$0
Costs:
Purchase price of lay out work	$	$	$
Salaries
Benefits
Supplies
Office expenses
Office depreciation
Computer depreciation
Income (loss)	$	$	$

b. The benefit from using an outside service isshown to be   than performing the lay out workinternally. The fixed costs (depreciation expenses) in the budgetare   to the decision. Thus, the workshould   purchased from the outside on a strictlyfinancial basis.

c. Before electing to   the fiveemployees, the guild should consider the   of thedecision.