Davis Company currently buys a component part for $6.10 per unit. Davis estimates that making the part would require $4.60 per unit of direct materials and $2.10 per unit of direct labor. Davis normally applies overhead using a predetermined overhead rate of 125% of direct labor cost. Davis estimates incremental overhead of $1.60 per unit to make the part. The net incremental cost or savings of making the component is:

$2.20 savings per unit.

$2.20 cost per unit.

$3.20 savings per unit.

$3.20 cost per unit.

$1.05 cost per unit.

Answer rating: 100% (QA)

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