PA11-2 (Algo) Making Automation Decision [LO 11-1, 11-2, 11-3, 11-5]

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[The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $8.56 million, and the equipment has a useful life of 7 years with a residual value of $1,000,000. The company will use straight-line depreciation. Beacon could expect a production increase of 37,000 units per year and a reduction of 20 percent in the labor cost per unit.

	Current (no automation)			Proposed (automation)
	80,000 units			117,000 units
Production and sales volume	Per Unit		Total	Per Unit		Total
Sales revenue	$	97	$ ?	$	97	$ ?
Variable costs
Direct materials	$	18		$	18
Direct labor		30			?
Variable manufacturing overhead		9			9
Total variable manufacturing costs		57			?
Contribution margin	$	40	?	$	46	?
Fixed manufacturing costs			$ 1,050,000			$ 2,230,000
Net operating income			?			?

Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.) Current (no automation) 80,000 units Per Unit Total Proposed (automation) 117,000 units Per Unit Total 97 $ 97 $ $ 18 $ 18 30 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 9 9 57 $ 40 $ 46 $ 1,050,000 $ 2,230,000 1-b. Does Beacon Company favor automation? O Yes O No