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 Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 90 $ ? $ 90 $ ? Variable costs Direct materials $ 18 $ 18 Direct labor 25 ? Variable manufacturing overhead 10 10 Total variable manufacturing costs 53 ? Contribution margin $ 37 ? $ 42 ? Fixed manufacturing costs 1,250,000 2,350,000 Net operating income ? ? Required: 2. Determine the project's accounting rate of return. Note: Round your answer to 2 decimal places
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 Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 90 $ ? $ 90 $ ? Variable costs Direct materials $ 18 $ 18 Direct labor 25 ? Variable manufacturing overhead 10 10 Total variable manufacturing costs 53 ? Contribution margin $ 37 ? $ 42 ? Fixed manufacturing costs 1,250,000 2,350,000 Net operating income ? ? Required: 2. Determine the project's accounting rate of return. Note: Round your answer to 2 decimal places
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 $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
| Production and sales volume | Current (no automation) 80,000 units | Proposed (automation) 120,000 units | ||
|---|---|---|---|---|
| Per Unit | Total | Per Unit | Total | |
| Sales revenue | $ 90 | $ ? | $ 90 | $ ? |
| Variable costs | ||||
| Direct materials | $ 18 | $ 18 | ||
| Direct labor | 25 | ? | ||
| Variable manufacturing |
10 | 10 | ||
| Total variable |
53 | ? | ||
| Contribution margin | $ 37 | ? | $ 42 | ? |
| Fixed manufacturing costs | 1,250,000 | 2,350,000 | ||
| Net operating income | ? | ? |
Required:
2. Determine the project's accounting
Note: Round your answer to 2 decimal places.
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