Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of 6 years with a residual value of $1,060,000. The company will use straight-line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit.

	Current (no automation)			Proposed (automation)
	77,000 units			124,000 units
Production and sales volume	Per Unit		Total	Per Unit		Total
Sales revenue	$	97	$ ?	$	97	$ ?
Variable costs
Direct materials	$	15		$	15
Direct labor		15			?
Variable manufacturing overhead		9			9
Total variable manufacturing costs		39			?
Contribution margin	$	58	?	$	61	?
Fixed manufacturing costs			$ 1,140,000			$ 2,230,000
Net operating income			?			?

PA11-2 Part 1

Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.)

1-b. Does Beacon Company favor automation?

multiple choice

• Yes

• No

Current (no automation) 77,000 units Proposed (automation) 124,000 units Production and Sales Volume Per Unit Total Per Unit Total Sales revenue $ 97 $ 97 Variable costs Direct materials $ 15 $ 15 Direct labor 15 9 9 39 Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income $ 58 $ 61 $ 1,140,000 $ 2,230,000