Question

MC Qu. 76 Paxton Company can produce a component of... 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 savings per unit. $0 cost or savings per unit. $7.10 savings per unit. $2.10 cost per unit. $7.10 cost per unit.

Answer 1

$7.1 cost per unit.

Step-by-step explanation:

Incremental cost are the cost incurred when settling for an alternative between two options.

In calculating incremental cost , variable cost are the relevant cost as fixed costs will always be incurred regardless of the options settled for

Variable cost of production

Direct material - $9.10

Direct labor - $13.10

Variable overhead - $2.10

$24.3

Cost of buying from an outside supply is $31.40

Incremental cost of buying = $7.1