Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.40; direct labor, $13.40, variable overhead $2.40 and fixed overhead, $7.40. An outside supplier has offered to sell the product to Paxton for $32.60. Compute the net incremental cost or savings of buying the component.

Multiple Choice

• $2.40 cost per unit.
• $7.40 savings per unit.
• $0 cost or savings per unit.
• $7.40 cost per unit.
• $2.40 savings per unit.