Question

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 25,000 pages for 2014. The computers used by the department have an estimated residual value of $9,000. The Publication Department office space and equipment would be used for future administrative needs, if the department's function were purchased from the outside.

Required:
Prepare a differential analysis dated February 22 to determine whether TAG-I) should lay out pages internally (Alternative l) purchase layout services from the outside.

Answer 1

Answer:

                Statement showing Differential Analysis

                                            Internally     Outsource     Differential

Costs:

Purchase price of layout        -                 $325,000      -$325,000

work (25,000*$13)

Salaries                               $224,000             -                 $224,000

Benefits                               $36,000               -                 $36,000

Supplies                              $21,000                -                  $21,000

Office expense                   $39,000               -                  $39,000

Office depreciation             $28,000         $28,000                -

Computer depreciation      $24,000         $24,000                 -

Income / Loss                     $372,000       $377,000        -$5,000

Conclusion: It’s not beneficial to Purchase from outside as the Income is negative.