Question

Lucius Smith is an assembler for a chair manufacturer. Normally he spends one hour (at $25/hour) for each chair he assembles. After assembling 500 chairs, he wants to spend 10 minutes more per chair to improve quality. Management approves. This will change the:

A) Fixed cost line
B) Variable cost line
C) Semi-variable cost
D) Semi-fixed cost

Answer 1

Lucius Smith's decision to spend an additional 10 minutes on each chair he assembles increases the variable cost for the chair manufacturer since labor costs will rise directly with production output.

Step-by-step explanation:

When Lucius Smith decides to spend an extra 10 minutes per chair to improve quality, this change affects the variable cost line for the chair manufacturer. This is because the cost depends directly on production output, and by taking longer on each chair, Lucius increases the labor cost for each unit produced. Fixed costs, such as rent for the manufacturing space or the equipment used for assembly, remain the same regardless of the number of chairs produced or the time taken to produce them.

In this case, the cost of labor constitutes a variable cost, and since Lucius’s wage is $25 per hour, an additional 10 minutes on each chair translates to a direct increase in the labor costs associated with production. If we consider the example of The Clip Joint, where fixed costs and variable costs were clearly outlined for the barbers and their services, a similar approach is taken here.

The wages for the barbers were variable costs. Similarly, as Lucius spends more time per chair, his wages become an increased variable cost for the firm. This adjustment to labor on a per-unit basis makes it a variable cost, not a fixed, semi-fixed, or semi-variable one.