Question :

Consider a division of Hewlett-Packard presently makes 10,000 circuit boards per year used in producing diagnostic electronic instruments at a cost of $32 per board, consisting of variable costs per unit of $24 and fixed costs per unit of $8. Further consider Sanmina-SCI offers to sell Hewlett-Packard the 10,000 circuit boards for $32 each. If Hewlett-Packard accepts this offer, the facilities presently used to make the boards could be rented to one of Hewlett-Packard's suppliers for $25,000 per year. In addition, $5 per unit of the fixed overhead applied to the circuit boards would be totally eliminated.

Determine the net benefit (cost) to HP of outsourcing the component from Samina-SCI.

Port Allen Chemical Company processes raw material D into joint products E and F. Raw material D costs $5 per liter. It costs $100 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F will be sold instantly for $5 per liter or processed further into Product G at an additional cost of $4 per liter. Product G can then be sold for $12 per liter.

Evaluate whether Product F should be sold or processed further into Product G. Determine the net benefit (cost) of further processing per liter.