Jane Westerlund owns a picture-framing shop, The Caplow Co. The average price she receives for a picture she frames for a customer is $120. This price must cover her average costs for a typical framed picture of $5 for glass, $2 for matting, and $13 for the frame, and $30 for the labour involved. She must also cover monthly expenses of $1,000 for rent and insurance, $200 for heat and electricity, $500 for advertising, and
$3,500 for her salary. Westerlund is considering buying an automatic mat-cutting machine in order to reduce the number of hours of direct labour required to produce a framed picture. In considering this purchase, she should recognize it will ________ Caplow's variable cost and ________Caplow's fixed cost.
A)increase; decrease
B)increase; increase
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

Purchasing an automatic mat-cutting machine would increase Caplow's fixed costs due to the initial investment and ongoing maintenance, but it would decrease the variable costs by reducing the amount of direct labor required per picture.

Jane Westerlund Owns a Picture-Framing Shop, the Caplow Co