Question

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.10; direct labor, $13.10, variable overhead $2.10 and fixed overhead, $7.10. An outside supplier has offered to sell the product to Paxton for $31.40. Compute the net incremental cost or savings of buying the component.Multiple Choice$2.10 cost per unit.$7.10 savings per unit.$0 cost or savings per unit.$7.10 cost per unit.$2.10 savings per unit.

Answer 1

Answer:

$0 cost or savings per unit

Explanation:

Cost to Buy

Purchase Price       $31.40

and,

Costs to Make

Direct materials        $9.10

Direct labor              $13.10

Variable overhead   $2.10

Fixed Overheads     $7.10

Total                        $31.40

therefore

The net incremental cost or savings of buying the component is $0 cost or savings per unit