An oil company is considering a routine core analysis to be done from an outside lab. The outside lab charges 20$ per core plus $1 per core for shipping and handling. The manger of the core lab at the oil company contends that costs associated with the equipment are approximately $10/core, the cost of material is $2/core, and the cost of direct laboris $5/core. Therefore, he contends that the core study should be done in-house. Why?

The company has conducted its economic study and has observed that, based on the overhead cost allocation, the cost of lab space is $4/core and the overhead costs are $3/core. The company thinks that it can use the space more efficiently.

Discuss why the core analysis should be done outside. What is the correct perspective in economic analysis?