Should hp outsource this component from sanmina

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Outsourcing (Make-or-Buy) Decision

Assume a division of Hewlett-Packard currently makes 12,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $37 per board, consisting of variable costs per unit of $25 and fixed costs per unit of $12. Further assume Sanmina Corporation offers to sell Hewlett-Packard the 12,000 circuit boards for $37 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 $55,000 per year. In addition, $7 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.

Reference no: EM132497210

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