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)decrease; increase
B)decrease; decrease
C)increase; decrease
D)increase; increase

Question

Quizplus · Accepted Answer

By purchasing the automatic mat-cutting machine, the cost of direct labour involved in producing a framed picture will decrease, which will decrease Caplow's variable costs. However, the cost of purchasing the machine will increase Caplow's fixed costs as it is a one-time investment. Therefore, the correct choice is A) decrease variable costs and increase fixed costs.

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