**Ford Motor Company's Equipment Purchase Analysis**Ford Motor Company is considering acquiring a new piece of equipment for one of its plants. The financial impact of this investment is projected as follows:- The contribution margin is expected to rise from $275,000 to $330,000.- Net income is expected to remain constant at $100,000 annually.**Objective:**Compute the degree of operating leverage both before and after purchasing the new equipment. The calculations should be rounded to two decimal places (e.g., 15.25).**Degree of Operating Leverage:**- **Before:** [Input Field]- **After:** [Input Field]The degree of operating leverage (DOL) is an essential metric for understanding how a company's operating income changes with sales. It highlights the potential impact on profitability from changes in sales volume.

Contribution margin = Sales - variable cost / sales - variable…

Answered: Ford Motor Company is considering…

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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! Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.40 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 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) 77,000 units Net present value Per Unit $93 $16 25 10 51 $42 Total $ ? ? $ 1,240,000 ? Proposed (automation) 113,000 units Per Unit $93 $16 ? 10 ? $ 47 Total $ ? ? $ 2,330,000 ? 4. Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed…
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Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 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) 81,000 Proposed (automation) 128,000 units units Net present value Per Unit $94 $ 17 30 9 56 $ 38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $? ? 2,200,000 ? Required: 5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1. Present Value of…
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