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. Current (no automation) 80,000 units Proposed (automation) 120,000 units Production and sales volume Total Total 2 Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs $ 1,250,000 $ 2,350,000 Net operating income Per Unit $90 $18 25 10 53 $ 37 Per Unit $.90 $18 ? 10 ? $42 of 5 bok ences 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) Proposed (automation) 80,000 Units 120,000 Units Per Unit Per Unit $ $ 90 $ $ 18 $ Total 90 $7,200,000 18 25 10 53 37 1,250,000 $ 9 42 Total 10,800,000 2,350,000