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 %