Assume a firm reduces its cost by shifting from paychecks to payroll cards, whic

Question

Assume a firm reduces its cost by shifting from paychecks to payroll cards, which are stored-value cards onto which the companies can download employees' wages and salaries electronically. If the only factor of production the firm varies in the short run is the number of hours worked by people already on its payroll, would the shift from paychecks to payroll cards reduce the firms total fixed costs or its variable costs?

A. Since the wages paid to employees, the firm's variable labor input, have changed, if the switch from issuing paychecks to payroll cards iscost-reducing, this change will cut its variable costs of meeting its payrolls.

B.Since the number of hours worked is variable, the variable cost of processing the payroll changes; therefore, the cost savings must come from a reduction in variable costs in the short run.

C. Since the wages paid to employees, the firm's variable labor input, have not changed, variable costs are unaffected. If the switch from issuing paychecks to payroll cards is cost-reducing, this change will cut its fixed costs of meeting its payrolls.

D. Since the number of hours worked is variable, the variable cost of processing the payroll changes; therefore, the cost savings must come from a reduction in variable costs in the long run.

Explanation / Answer

ans =c

As the wages paid to personnel, the company's variable labor input, have not altered, variable expenses are unimpacted. If the change from paychecks to using payroll cards is expenditure-reducing, this will reduce its fixed expenses of meeting its payrolls.

Payroll cards are a substitute to paper checks. They are issued by some payment processors like Visa enabling personnel to utilize them where credit cards are acceptable. Users gain access to their funds via an ATM / cash- back -purchase in the similar way as with a conventional debit card / credit card. These are reloadable, so an employee need not receive a fresh card every pay time.

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