Question
PA11-2 Making Automation Decision [LO 11-1, 11-2, 11-3, 11-5] [The following information applies to the questions displayed below.] Beacon Company is considering automating its production
PA11-2 Making Automation Decision [LO 11-1, 11-2, 11-3, 11-5]
[The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $11.41 million, and the equipment has a useful life of 10 years with a residual value of $1,110,000. The company will use straight-line depreciation. Beacon could expect a production increase of 39,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation) | Proposed (automation) | ||||||||
Production and sales volume | 83,000 units | 122,000 units | |||||||
Per Unit | Total | Per Unit | Total | ||||||
Sales revenue | $ | 95 | ? | $ | 95 | ? | |||
Variable costs | |||||||||
Direct materials | $ | 18 | $ | 18 | |||||
Direct labor | 25 | ? | |||||||
Variable manufacturing overhead | 8 | 8 | |||||||
Total variable manufacturing costs | 51 | ? | |||||||
Contribution margin | $ | 44 | ? | $ | 49 | ? | |||
Fixed manufacturing costs | $ 1,220,000 | $ 2,170,000 | |||||||
Net operating income | ? | ? | |||||||
PA11-2 Part 1
Required: 1-a. Complete the following table showing the totals. (Enter all answers in whole dollars.) 1-b. Does Beacon Company favor automation?
Yes | |
No |
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
4. Using a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollar. Round the final answer to nearest whole dollars.)
5. Recalculate the NPV using a 10% discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollar. Round the final answer to nearest whole dollars.)
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