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 labor 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 labor required to produce a framed picture.In considering this purchase, she should recognize this purchase will __________ Caplow's variable cost and __________ Caplow's fixed cost.
A)decrease; increase
B)decrease; decrease
C)increase; decrease
D)increase; increase
E)have no effect on; have no effect on

Question

Quizplus · Accepted Answer

Introducing the automatic mat-cutting machine will reduce the labor costs involved in framing a picture, thereby decreasing the variable costs. However, purchasing the machine will increase the fixed costs, as it involves making an investment in new equipment.

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