Jane Westerlund owns a picture-framing store,The Caplow Co.The average price she receives for a framed picture is $120.This price must cover her costs for a typical framed picture,which consists of $5 for glass,$2 for matting,$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 matte-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 that 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;decrease

Question

Quizplus · Accepted Answer

By reducing the number of hours of direct labor required, the purchase of the automatic matte-cutting machine will decrease Caplow's variable cost. However, the cost of the machine and any associated maintenance will increase Caplow's fixed cost.

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