Beacon Company is considering automating its production facility. The initial investment in automation would be $12.89 million, and the equipment has a useful life of 10 years with a residual value of $1,190,000. The company will use straight- line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Current (no automation) Proposed (automation) 122,000 units 84,000 units Per Unit Total Per Unit $ 91 $ ? $ 91 $ 18 ? Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income $ 18 Required: 3. Determine the project's payback period. Note: Round your answer to 2 decimal places. Answer is complete but not entirely correct. Payback period 3.19 years 20 9 9 47 ? $ 44 ? 1,230,000 ? $ 48 Total $ ? ? 2,180,000 ?
Beacon Company is considering automating its production facility. The initial investment in automation would be $12.89 million, and the equipment has a useful life of 10 years with a residual value of $1,190,000. The company will use straight- line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Current (no automation) Proposed (automation) 122,000 units 84,000 units Per Unit Total Per Unit $ 91 $ ? $ 91 $ 18 ? Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income $ 18 Required: 3. Determine the project's payback period. Note: Round your answer to 2 decimal places. Answer is complete but not entirely correct. Payback period 3.19 years 20 9 9 47 ? $ 44 ? 1,230,000 ? $ 48 Total $ ? ? 2,180,000 ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
None
Transcribed Image Text:Beacon Company is considering automating its production facility. The initial investment in automation would be $12.89
million, and the equipment has a useful life of 10 years with a residual value of $1,190,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Production and sales volume
Sales revenue
Variable costs
Current (no automation)
Proposed (automation)
122,000 units
84,000 units
Per Unit
Total
Per Unit
$ 91
$ ?
$ 91
$ 18
?
Direct materials
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin
Fixed manufacturing costs
Net operating income
$ 18
Required:
3. Determine the project's payback period.
Note: Round your answer to 2 decimal places.
Answer is complete but not entirely correct.
Payback period
3.19 years
20
9
9
47
?
$ 44
?
1,230,000
?
$ 48
Total
$ ?
?
2,180,000
?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education