A. This answer includes depreciation which is an unavoidable cost, and should not be included.

B. In this problem want to calculate all avoidable cost. Therefore, the minimal unit price that Power Systems should bid is $385,000 ($200,000 DM + $150,000 DL + $20,000 Supervisors salary + $15,000 Fringe benefits on DL).

C. This answer includes unavoidable cost (depreciation and rent) that should not be included.

D. This answer does not include the salary of the supervisor who would be laid off if production of the engine were discontinued. This is an avoidable cost and should be included in the calculation.

Question 73 D

A. Opportunity cost has to do with lost benefit (inflow). Total variable cost is an outflows.

B. Opportunity cost has to do with lost benefit (inflow). Fixed manufacturing cost is an outflow.

C. Opportunity cost has to do with lost benefit (inflow). Manufacturing cost is an outflow.

D. The key term is "no alternative use." Opportunity cost is the foregone benefit by not selecting the next best use of a resource. Therefore, opportunity cost is zero since there is no alternative use for the plant capacity.