Question

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10; direct labor, $14, variable overhead $3 and fixed overhead, $8. An outside supplier has offered to sell the product to Paxton for $32. Compute the net incremental cost or savings of buying the component

Answer 1

If Paxton accepts the offer to buy the component from the outside supplier will save US$ 3 per unit.

Step-by-step explanation:

1. Let's check the information provided to answer the question correctly:

Costs per unit of the component of Paxton Company:

Direct Materials = US$ 10

Direct Labor = US$ 14

Variable overhead = US$ 3

Fixed overhead = US$ 8

Total costs per unit = 10 + 14 + 3 + 8 = 35

2. An outside supplier has offered to sell the product to Paxton for $32. Compute the net incremental cost or savings of buying the component.

Savings per unit = Costs per unit of the component produced by Paxton Company - Costs per unit of the component produced by an outside supplier

Savings per unit = 35 - 32

Savings per unit = US$ 3