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

Multiple Choice

$5.00 savings per unit.

$3.00 cost per unit.

$0 cost or savings per unit.

$5.00 cost per unit.

$3.00 savings per unit.