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 $7.47 million, and the equipment has a useful life of 6 years with a residual value of $1,050,000. The company will use straight- line depreciation. Beacon could expect a production increase of 45,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Per Unit Total $ 91 Proposed (automation) 127,000 units Per Unit Total $ 91 $ ? $ ? $ 19 $ 19 20 ? 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 10 10 49 $ 42 ? $ 46 $ 1,050,000 $ 2,200,000 PA11-2 Part 1 Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.) Answer is complete and correct. Current (no automation) 82,000 units Per Unit Total $ 91 $ 7,462,000 Proposed (automation) 127,000 units Per Unit Total $ 91 $ 11,557,000 Production and Sales Volume Sales revenue Variable costs Direct materials 19 $ Direct labor 20 Variable manufacturing overhead Total variable manufacturing costs 10 49 42 19 16 10 45 46 Contribution margin $ $ Fixed manufacturing costs Net operating income 3,444,000 $ 1,050,000 $ 2,394,000 5,842,000 $ 2,200,000 $ 3,642,000 PA11-2 Part 2 2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.) Accounting rate of return % This is a numeric cell, so please enter numbers only. PA11-2 Part 3 3. Determine the project's payback period. (Round your answer to 2 decimal places.) Payback period years PA11-2 Part 4 4. Using a discount rate of 14 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 dollars.) Net present value PA11-2 Part 5 5. Recalculate the NPV using a 9 percent 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 dollars.) Net present value
