2. Determine the project's accounting rate of return.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Beacon Company is considering automating its production facility. The initial investment in automation would be $10.71
million, and the equipment has a useful life of 9 years with a residual value of $1,170,000. 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)
77,000 units
Proposed
(automation)
123,000 units
Per
Per
Production and sales volume
Unit
Total
Unit
Total
Sales revenue
$ 96
$ ?
$ 96
$ ?
Variable costs
Direct materials
$ 19
$ 19
Direct labor
Variable manufacturing overhead
Total variable manufacturing
15
?
8
8
42
?
costs
$ 54
$ 57
Contribution margin
Fixed manufacturing costs
$ 1,080,000
$ 2,250,000
Net operating income
?
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
Accounting rate of return
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F264ec024-91a9-4da1-aedc-4284cec9541b%2F8d7d2980-b588-43ae-a55a-48f776181ebb%2Fs441flt_processed.png&w=3840&q=75)
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Required information
[The following information applies to the questions displayed below.]
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.71
million, and the equipment has a useful life of 9 years with a residual value of $1,170,000. 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)
77,000 units
Proposed
(automation)
123,000 units
Per
Per
Production and sales volume
Unit
Total
Unit
Total
Sales revenue
$ 96
$ ?
$ 96
$ ?
Variable costs
Direct materials
$ 19
$ 19
Direct labor
Variable manufacturing overhead
Total variable manufacturing
15
?
8
8
42
?
costs
$ 54
$ 57
Contribution margin
Fixed manufacturing costs
$ 1,080,000
$ 2,250,000
Net operating income
?
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
Accounting rate of return
%
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