Paxton Company can produce a component of its product that incurs the following costs per unit: direct materials, $9.80; direct labor, $13.80, variable overhead $2.80 and fixed overhead, $7.80. An outside supplier has offered to sell the product to Paxton for $34.20. Compute the net incremental cost or savings of buying the component.

Multiple Choice

• $2.80 cost per unit.
• $7.80 savings per unit.
• $0 cost or savings per unit.
• $7.80 cost per unit.
• $2.80 savings per unit.