The company has an offer from Value Valves to produce the part for $2,100 per unit and supply 1,000 valves (the number needed for the next operating cycle). If the company accepts this offer and shuts down production of the valves, production workers and supervisors will be reassigned to other areas. The equipment cannot be used elsewhere in the company and it has not market value. However, the space occupied by the production of the valve can be used by another production group that is currently leasing space for $55,000 per year.
Should the company make or buy the valve?
Answer these questions:
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 assiciated 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.