Outsourcing (Make-or-Buy) Decision

Assume a division of Hewlett-Packard currently makes 10,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $34 per board, consisting of variable costs per unit of $24 and fixed costs per unit of $10. Further assume Sanmina Corporation offers to sell Hewlett-Packard the 10,000 circuit boards for $34 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 $27,000 per year. In addition, $5 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.

Should HP outsource this component from Sanmina Corporation?

Calculate the net advantage (disadvantage)to HP of outsourcing the component from Samina Corporation.

Use a negativesign with your answer to indicate a net disadvantage, if appropriate.

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