E17-21. Outsourcing (Make-or-Buy) Decision

Assume a division of HP Inc. currently makes 50,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $50 per board, consisting of variable costs per unit of $35 and fixed costs per unit of $15. Further assume Sanmina Corporation offers to sell HP the 50,000 circuit boards for $50 each. If HP accepts this offer, the facilities currently used to make the boards could be rented to one of HP's suppliers for $75,000 per year. In addition, $8 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.

Required:

Should HP outsource this component from Sanmina Corporation? Support your answer with relevant cost calculations.