Final answer:
Wheeler Company would save $2.80 per unit by purchasing the product from an outside supplier as opposed to producing it themselves, as their own production cost is $41.20 per unit compared to the buying price of $44.00.
Step-by-step explanation:
The net incremental cost or savings of buying the product from an outside supplier for Wheeler Company can be calculated by summing up the internal costs of production and comparing them to the supplier's offer. Wheeler's costs per unit are direct materials at $9.50, direct labor at $23.50, and incremental overhead at $8.20, giving us a total of $41.20. The supplier's offer to sell the product for $44.00 results in a savings of $2.80 per unit if Wheeler decides to purchase rather than produce internally.
By buying the product, Wheeler Company saves $2.80 per unit (difference between buying price and internal production cost). The concept of incremental analysis is utilized when determining whether to make or buy a product. This decision-making process involves comparing the additional costs of producing the product internally to the price of purchasing it from an external supplier. In this scenario, Wheeler Company calculates its per-unit costs of production by adding the direct materials ($9.50), direct labor ($23.50), and incremental overhead ($8.20), which gives us a total internal production cost of $41.20 per unit. This cost is then compared to the supplier's offer to sell the same product to Wheeler for $44.00 per unit.
Calculating the difference, we see that the supplier's price is higher by $2.80. This does not represent a cost but rather a net saving, as it is less expensive for Wheeler to buy the product than to produce it. Making a plagiarism free content decision based on these figures, it would be financially advantageous for Wheeler Company to opt for the purchase, as this would result in a $2.80 saving per unit multiplied by the number of units they require.