1. Compute a cash flow analysis of the incremental costs of outsourcing versus the status quo. This can be done in two ways:
2. Calculate gross costs under the status quo, and gross costs if Lee outsources, and then take the difference.
3. Focus on the differences between status quo and gross costs.
4. Compute the net present value of outsourcing based on a cost of capital rate of 12%/year.

LeMar Outdoor Play Products Exhibit I LeMar Outdoor Play Products, Ltd: An Outsourcing Decision to India Most Recent In-house, Annual Operating Costs for Functions to be Outsourced (in pretax Canadian dollars) General supplies and recurring systems maintenance 24,000 Special brochures (A) 19,000 Wages and benefits for six employees to be let go due to outsourcing 466,200 Salary and benefits for cousin whose functions would be outsourced 80,000 Salary and benefits for James Black 90,000 Outsourced functions' current share of office space 30,000 Annual depreciation expense on outsourced functions' equipment 17,500 Other (B) 31,000 Share of corporate costs: Legal 9,000 Lee's and Marcia's salaries 32,000 Insurance 6,000 New product-related research 5,000 Total 809,700 (A) The special 3D brochures were already produced by LOPP fof six standard products. Additional brochures were also on hand pertaining to the company's field services and company history. Lee estimated that at current distribution rates, the company had a one-year supply of those materials already on hand. (B) These costs included travel, continuing education, and consulting fees all pertaining to the functions to be outsourced