Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 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 Current (no automation) 82,000 units Proposed (automation) 125,000 units Per Unit Per Total Unit Total $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?

Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 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 Current (no automation) 82,000 units Proposed (automation) 125,000 units Per Unit Per Total Unit Total $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?

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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