Question

Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $10.50; direct labor, $14.50, variable overhead, $3.50 and fixed overhead, $8.50. An outside supplier has offered to sell the product to Axle for $37.00. Compute the net incremental cost or savings of buying the component.

Answer 1

$8.50

Step-by-step explanation:

Computation for the net incremental cost or savings of buying the component.

Using this formula

Incremental cost = Purchase price -Cost savings

Let plug in the formula

$37 - ($10.50+ $14.50 + 3.50)

Incremental cost=$37-$28.5

Incremental cost= $8.50

Therefore the net incremental cost or savings of buying the component is $8.50