11L-6

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 $7.46 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. Current (no Proposed automation) (automation) 83,000 units 130,000 units Per Per Production and sales volume Unit Total Unit Total Sales revenue $ 99 $ ? $ 99 $ ? Variable costs Direct materials $ 16 Direct labor 15 Variable manufacturing overhead 11 Total variable manufacturing costs 42 Contribution margin $ 57 2 ? Fixed manufacturing costs $ 1,210,000 $ 2,200,000 Net operating income $ 16 2 11 ? $ 60 ? ? Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.) Current (no automation) 83,000 units Per Unit Total Proposed (automation) 130,000 units Per Unit Total Production and Sales Volume $ 99 $ 99 $ 16 $ 16 15 Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income 11 11 42 $ 57 $ 60 $ 1,210,000 $ 2,200,000 1-b. Does Beacon Company favor automation? O Yes O No