Beacon Company is considering automating its production facility. The initial investment in automation would be $10.3 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straig line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue Variable costs Direct materials Direct labor Variable manufacturing $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 Fixed manufacturing costs overhead Total variable manufacturing costs Contribution margin Net operating income 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.3 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straig line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue Variable costs Direct materials Direct labor Variable manufacturing $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 Fixed manufacturing costs overhead Total variable manufacturing costs Contribution margin Net operating income 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ashvin
![[The following information applies to the questions displayed below.]
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31
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.
Current (no
automation)
82,000 units
Proposed
(automation)
125,000 units
Production and sales volume
Per
Unit
Per
Total
Unit
Total
Sales revenue
Variable costs
Direct materials
Direct labor
Variable manufacturing
overhead
$ 96
$ ?
$ 96
$ ?
$ 16
$ 16
15
?
9
9
Total variable manufacturing
costs
40
?
Contribution margin
$ 56
?
$ 59
?
Fixed manufacturing costs
$ 1,240,000
$ 2,330,000
Net operating income
?
?
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.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign.
Enter the answer in whole dollars.)
Net present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F928e4404-3fea-4f8a-b7cd-c9c3b47dc15c%2Fbc597b13-13a5-469f-9cfb-fd54001557ff%2Fjb84trz_processed.jpeg&w=3840&q=75)
Transcribed Image Text:[The following information applies to the questions displayed below.]
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31
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.
Current (no
automation)
82,000 units
Proposed
(automation)
125,000 units
Production and sales volume
Per
Unit
Per
Total
Unit
Total
Sales revenue
Variable costs
Direct materials
Direct labor
Variable manufacturing
overhead
$ 96
$ ?
$ 96
$ ?
$ 16
$ 16
15
?
9
9
Total variable manufacturing
costs
40
?
Contribution margin
$ 56
?
$ 59
?
Fixed manufacturing costs
$ 1,240,000
$ 2,330,000
Net operating income
?
?
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.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign.
Enter the answer in whole dollars.)
Net present value
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