Axle Company can produce a product that incurs the following costs per unit: dir

Question

Axle Company can produce a product that incurs the following costs per unit: direct materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to sell the product to Axle for $45. If Axle buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying. Question 2 options: $4.00 savings per unit. $4.00 cost per unit. $2.20 cost per unit. $3.80 cost per unit. $2.20 savings per unit. Axle Company can produce a product that incurs the following costs per unit: direct materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to sell the product to Axle for $45. If Axle buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying. Axle Company can produce a product that incurs the following costs per unit: direct materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to sell the product to Axle for $45. If Axle buys from the supplier, it will still incur 45% of its overhead cost. Compute the net incremental cost or savings of buying. $4.00 savings per unit. $4.00 cost per unit. $2.20 cost per unit. $3.80 cost per unit. $2.20 savings per unit. $4.00 savings per unit. $4.00 cost per unit. $2.20 cost per unit. $3.80 cost per unit. $2.20 savings per unit. $4.00 savings per unit. $4.00 cost per unit. $2.20 cost per unit. $3.80 cost per unit. $2.20 savings per unit.

Explanation / Answer

OPTION C

Existing cost / unit = 10 + 24 + 16 = $50

Cost if bought from outside = 45 + 0.45*16 [O/H still incurred]
= $52.2

Thus, we incur an net incremental cost of 52.2 - 50 = $2.2/unit

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