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Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of

Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of 6 years with a residual value of $1,060,000. 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 automation) Proposed (automation)
77,000 units 124,000 units
Production and sales volume Per Unit Total Per Unit Total
Sales revenue $ 97 $ ? $ 97 $ ?
Variable costs
Direct materials $ 15 $ 15
Direct labor 15 ?
Variable manufacturing overhead 9 9
Total variable manufacturing costs 39 ?
Contribution margin $ 58 ? $ 61 ?
Fixed manufacturing costs $ 1,140,000 $ 2,230,000
Net operating income ? ?

PA11-2 Part 3

3. Determine the project's payback period. (Round your answer to 2 decimal places.)

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