Assume a division of Hewlett-Packard currently makes 10,000 circuit boards per y
ID: 2464606 • Letter: A
Question
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-SCI 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. Calculate the net benefit (cost) to HP of outsourcing the component from Samina-SCI. Use a negative sign with your answer, if appropriate.
Explanation / Answer
It will cost additional $23000 if its outsourced. Hence should not be outsourced.
Outsourcing Fixed cost (5*10000) -50000 Rent income 27000 Net benefit/cost -23000Related Questions
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