Outsourcing (Make-or-Buy) Decision – Hewlett-Packard

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-SCI 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.

Calculate the net benefit (cost) to HP of outsourcing the component
from Samina-SCI. Use a negative sign with your answer, if appropriate.