Davis Company currently buys a component part for $6.20 per unit. Davis estimates that making the part would require $4.70 per unit of direct materials and $2.20 per unit of direct labor. Davis normally applies overhead using a predetermined overhead rate of 125% of direct labor cost. Davis estimates incremental overhead of $1.70 per unit to make the part. The net incremental cost or savings of making the component is:
$2.40 cost per unit.
$1.10 cost per unit.
$3.40 cost per unit.
$3.40 savings per unit.
$2.40 savings per unit.
