Consider the information in Exercise 7-8 and identify the following statements as true or false.
a. Supervisory salary is an avoidable cost if the company decides to buy the valves.
b. Depreciation of building is an avoidable cost if the company decides to buy the valves.
c. The $55,000 cost of leasing space is an opportunity cost associated with continuing production of the valve.
d. The depreciation of equipment is an opportunity cost associated with continuing production of the valve.
e. Depreciation of building is a sunk cost even if the company continues with production of the valve.
f. Supervisory salary is a sunk cost even if the company continues with production of the valve.
Exercise 7-8
.....................................................................Cost per Unit
Variable costs
Direct material ..............................................................$ 950
Direct labor ....................................................................650
Variable overhead ............................................................300
Total variable costs .......................................................$1,900
Fixed costs
Depreciation of equipment ..................................................500
Depreciation of building .....................................................200
Supervisory salaries ..........................................................300
Total fixed costs ............................................................1,000
Total cost ...................................................................$2,900