Outsourcing (Make-or-Buy) Decision (LO1, 2, 3)

Assume a division of Hewlett-Packard currently makes 10,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $32 per board, consisting of variable costs per unit of $24 and fixed costs per unit of $8. Further assume Sanmina-SCI offers to sell Hewlett-Packard the 10,000 circuit boards for $32 each. If Hewlett-Packard accepts this offer, the facilities currently used to make the boards could be rented to one of Hewlett-Packard’s suppliers for $25,000 per year. In addition, $5 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.

Required Should HP outsource this component from Samina-SCI? Support your answer with relevant cost calculations.