Help SaveExit S labor 1310 3140 Compute the net incremental

Help Save&Exit; S labor, $13.10, $31.40. Compute the net incremental cost or savings of buying the component. pany can produce a component of its product that incurs the following costs per unit: direct materials, $9.10; direct variable overhead $2.10 and fixed overhead, $710. An outside supplier has offered to sell the product to Paxton for

Solution

Total relevant cost of producing=direct materials+diredct labor+variable overhead

=(9.1+13.1+2.1)=$24.3

Hence net incremental cost of buying=(31.4-24.3)

=$7.1 cost per unit

[NOTE:Fixed costs would be incurred irrespectively and hence are not relevant cost].