Beacon Company is considering automating its production facility The initial investment in automation would be $8 06 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000 The company will use straight line depreciation Beacon could expect a production increase of 46,000 units per year and a reduction of 20 percent in the labor cost per unit Current (no automation) Proposed (automation) 87,000 units 133,000 units Production and sales volume Per Unit Total Per Unit Total Sales revenue $ 94 $ $ 94 $ Variable costs Direct materials $ 17 $ 17 Direct labor 25 Variable manufacturing overhead 9 9 Total variable manufacturing costs 51 Contribution margin $ 43 $ 48 Fixed manufacturing costs $ 1,120,000 $ 2,180,000 Net operating income 1 Complete the following table showing the totals Does Beacon Company favor automation 2 Determine the project's accounting rate of return (Round your answer to 2 decimal places ) 3 Determine the project's payback period (Round your answer to 2 decimal places ) 4 Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1 ) (Use appropriate factor(s) from the tables provided Negative amount should be indicated by a minus sign Enter the answer in whole dollar Round the final answer to nearest whole dollars ) 5 Recalculate the NPV using a 9 discount rate (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1 ) (Use appropriate factor(s) from the tables provided Negative amount should be indicated by a minus sign Enter the answer in whole dollar Round the final answer to nearest whole dollars )

Question

Beacon Company is considering automating its production facility  The initial investment in automation would be $8 06 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000  The company will use straight line depreciation  Beacon could expect a production increase of 46,000 units per year and a reduction of 20 percent in the labor cost per unit  Current (no automation) Proposed (automation) 87,000 units 133,000 units Production and sales volume Per Unit Total Per Unit Total Sales revenue $ 94 $   $ 94 $   Variable costs Direct materials $ 17 $ 17 Direct labor 25   Variable manufacturing overhead 9 9 Total variable manufacturing costs 51   Contribution margin $ 43   $ 48   Fixed manufacturing costs $ 1,120,000 $ 2,180,000 Net operating income     1 Complete the following table showing the totals  Does Beacon Company favor automation  2  Determine the project's accounting rate of return  (Round your answer to 2 decimal places ) 3 Determine the project's payback period  (Round your answer to 2 decimal places ) 4  Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment  (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1 ) (Use appropriate factor(s) from the tables provided  Negative amount should be indicated by a minus sign  Enter the answer in whole dollar  Round the final answer to nearest whole dollars  ) 5  Recalculate the NPV using a 9  discount rate  (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1 ) (Use appropriate factor(s) from the tables provided  Negative amount should be indicated by a minus sign  Enter the answer in whole dollar  Round the final answer to nearest whole dollars  )

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Question: Beacon Company is considering automating its production facility. The initial investment in automation would be $8.06 million, and the equipment has a useful life of

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Students Have Also Explored These Related Accounting Questions!

	Current (no automation)			Proposed (automation)
	87,000 units			133,000 units
Production and sales volume	Per Unit		Total	Per Unit		Total
Sales revenue	$	94	$ ?	$	94	$ ?
Variable costs
Direct materials	$	17		$	17
Direct labor		25			?
Variable manufacturing overhead		9			9
Total variable manufacturing costs		51			?
Contribution margin	$	43	?	$	48	?
Fixed manufacturing costs			$ 1,120,000			$ 2,180,000
Net operating income			?			?

1.Complete the following table showing the totals. Does Beacon Company favor automation? 2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.) 3.Determine the project's payback period. (Round your answer to 2 decimal places.) 4. Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollar. Round the final answer to nearest whole dollars.) 5. Recalculate the NPV using a 9% discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollar. Round the final answer to nearest whole dollars.)