The Munchies Corporation produces an executive jet for which it currently manufactures a fuel valve; the cost of the valve is indicated below:

Cost per Unit

Variable costs

Direct material$904

Direct labor670

Variable overhead298

Total variable costs$1,872

Fixed costs

Depreciation of equipment550

Depreciation of building189

Supervisory salaries280

Total fixed costs1,019

Total cost$2,891

The company has an offer from Duvall Valves to produce the part for $2,017 per unit and supply 910 valves (the number needed in the coming year). If the company accepts this offer and shuts down production of valves, production workers and supervisors will be reassigned to other areas where, unfortunately, they really are not needed. The equipment cannot be used elsewhere in the company, and it has no 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 $55,680 per year.

Identify the following statements as true or false.

a.Supervisory salary is an avoidable cost if the company decides to buy the valves.

True

False

b.Depreciation of building is an avoidable cost if the company decides to buy the valves.

True

False

c.The $55,680 cost of leasing space is an opportunity cost associated with continuing production of the valve.

True

False

d.The depreciation of equipment is an opportunity cost associated with continuing production of the valve.

True

False

e.Depreciation of building is a sunk cost even if the company continues with production of the valve.

True

False

f.Supervisory salary is a sunk cost even if the company continues with production of the valve.