Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.99 million, and the equipment has a useful life of
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.99 million, and the equipment has a useful life of 6 years with a residual value of $1,150,000. The company will use straight-line depreciation. Beacon could expect a production increase of 41,000 units per year and a reduction of 20 percent in the labor cost per unit.
Production and sales volume | Current (no automation) 83,000 units | Proposed (automation) 124,000 units | ||
---|---|---|---|---|
Per Unit | Total | Per Unit | Total | |
Sales revenue | $ 98 | $ ? | $ 98 | $ ? |
Variable costs | ||||
Direct materials | $ 15 | $ 15 | ||
Direct labor | 20 | ? | ||
Variable manufacturing overhead | 12 | 12 | ||
Total variable manufacturing costs | 47 | ? | ||
Contribution margin | $ 51 | ? | $ 55 | ? |
Fixed manufacturing costs | 1,110,000 | 2,250,000 | ||
Net operating income | ? | ? |
Required:
1-b. Does Beacon Company favor automation?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started