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Question 1: Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.40; direct labor, $13.40, variable overhead $2.40 and fixed overhead, $7.40. An outside supplier has offered to sell the product to Paxton for $32.60. Compute the net incremental cost or savings of buying the component.
Multiple Choice
Option 1: $2.40 cost per unit.
Option 2: $7.40 savings per unit.
Option 3: $0 cost or savings per unit.
Option 4: $7.40 cost per unit.
Option 5: $2.40 savings per unit.
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