Question
Required information PA11-2 (Algo) 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
Required information
PA11-2 (Algo) 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 $6.40 million, and the equipment has a useful life of 5 years with a residual value of $1,100,000. The company will use straight-line depreciation. Beacon could expect a production increase of 44,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation) | Proposed (automation) | ||||||||
89,000 units | 133,000 units | ||||||||
Production and sales volume | Per Unit | Total | Per Unit | Total | |||||
Sales revenue | $ | 93 | $ ? | $ | 93 | $ ? | |||
Variable costs | |||||||||
Direct materials | $ | 20 | $ | 20 | |||||
Direct labor | 30 | ? | |||||||
Variable manufacturing overhead | 10 | 10 | |||||||
Total variable manufacturing costs | 60 | ? | |||||||
Contribution margin | $ | 33 | ? | $ | 39 | ? | |||
Fixed manufacturing costs | $ 1,080,000 | $ 2,250,000 | |||||||
Net operating income | ? | ? | |||||||
PA11-2 Part 2
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
Accounting Rate of return %
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