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Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight- line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income PA11-2 Part 5 Current (no automation) 80,000 units Per Unit $ 90 $ 18 25 10 53 $ 37 Total $ ? ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 820 ? 10 ? $42 Total $ ? ? 2,350,000 ? Required: 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present

Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight- line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income PA11-2 Part 5 Current (no automation) 80,000 units Per Unit $ 90 $ 18 25 10 53 $ 37 Total $ ? ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 820 ? 10 ? $42 Total $ ? ? 2,350,000 ? Required: 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Production and Sales Volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 80,000 units Per Unit 90 $ $ 69 $ 18 25 10 53 37 Total $ 7,200,000 Proposed (automation) 120,000 units Per Unit $ 90 $ 2,960,000 $ 1,250,000 $ 1,710,000 18 20 10 48 42 Total 10,800,000 $ 5,040,000 2,350,000 $ 2,690,000
Transcribed Image Text:Production and Sales Volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 80,000 units Per Unit 90 $ $ 69 $ 18 25 10 53 37 Total $ 7,200,000 Proposed (automation) 120,000 units Per Unit $ 90 $ 2,960,000 $ 1,250,000 $ 1,710,000 18 20 10 48 42 Total 10,800,000 $ 5,040,000 2,350,000 $ 2,690,000
Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight- line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income PA11-2 Part 5 Current (no automation) 80,000 units Net present value Per Unit $ 90 $ 18 25 10 53 $ 37 Total $ ? ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 ? cole 10 ? $ 42 Total $ ? ? 2,350,000 ? Required: 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Enter the answer in whole dollars.
Transcribed Image Text:Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight- line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income PA11-2 Part 5 Current (no automation) 80,000 units Net present value Per Unit $ 90 $ 18 25 10 53 $ 37 Total $ ? ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 ? cole 10 ? $ 42 Total $ ? ? 2,350,000 ? Required: 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Enter the answer in whole dollars.
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