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

EXERCISE 7-9. Sunk, Avoidable, and Opportunity Costs 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.