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.
A. $3.00 cost per unit.
B. $5.00 cost per unit.
C. $0 cost or savings per unit.
D. $3.00 savings per unit.
E. $5.00 savings per unit.
Answer: B
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