Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.70; direct labor, $13.70, variable overhead $2.70 and fixed overhead, $7.70. An outside supplier has offered to sell the product to Paxton for $33.80. Compute the net incremental cost or savings of buying the component.

Multiple Choice

• $2.70 cost per unit.
• $7.70 savings per unit.
• $0 cost or savings per unit.
• $7.70 cost per unit.
• $2.70 savings per unit.