Question

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 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 $22 per layout page. The budget for the Publication Department is as follows: Salaries $183,000 Benefits 48,000 Supplies 31,000 Office expenses 20,000 Office depreciation 65,700 43,800 Computer depreciation $391,500 Total The department expects to lay out 33,200 pages. The computers used by the department have an estimated residual value of $29,200. The Publication Department office space would be used for future administrative needs if the department's function were purchased from the outside.

Answer 1

WINCONSIN ARTS OF MILWAUKEE
Purchase Outside Page Layout Service
Differential Analysis Report
Differential revenue:
Residual value of computer equipment		29,200
Differential cost of alternatives:
Purchase price of layout work:
Number of pages	33,200
Price per page	22
Total differential costs		-730,400
Cost to perform internally:
Salaries	183,000
Benefits	48,000
Supplies	31,000
Office expenses	20,000	282,000
Cost increase from purchasing outside layout services		-448,400
Net differential loss from using an outside service		-419,200

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