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Assume a division of Hewlett-packard currently makes 8,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $33 per board, consisting of variable costs per unit of $26 and fixed costs per unit of $7. Further assume Sanmina Corporation offers to sell Hewlett-packard the 8,000 circuit boards for $33 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 $29,000 per year. In addition, $3 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.
Question 1: Should HP outsource this component from Sanmina Corporation?
Question 2: Calculate the net advantage (disadvantage) to HP of outsourcing the component from Samina Corporation. Use a negative sign with your answer to indicate a net disadvantage, if appropriate.
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