Paxton Company Can Produce a Component of Its Product That

question 22

Multiple Choice

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

• A) $5.00 savings per unit.
• B) $0 cost or savings per unit.
• C) $3.00 cost per unit.
• D) $5.00 cost per unit.
• E) $3.00 savings per unit.

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Definitions:

Null Hypothesis

A stated hypothesis that there is no significant difference or effect, often denoted as H0, to be tested against the alternative hypothesis.

Type I Error

The incorrect rejection of a true null hypothesis or a false positive in hypothesis testing.

Type II Error

The mistake of failing to reject a null hypothesis when it is actually false, commonly represented by the symbol β (beta).

One-Tailed Test

A hypothesis test in which the region of rejection is only on one side of the sampling distribution, used when a research hypothesis predicts a direction of the effect.