Paxton Company Can Produce a Component of Its Product That

Multiple Choice

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 Axle for $32. Compute the net incremental cost or savings of buying the component.

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