Beacon Company is considering automating its production facility. The initial investment in automation would be...
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Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of 6 years with a residual value of $1,060,000. The company will use straight-line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit.
| Current (no automation) | Proposed (automation) | ||||||||
| 77,000 units | 124,000 units | ||||||||
| Production and sales volume | Per Unit | Total | Per Unit | Total | |||||
| Sales revenue | $ | 97 | $ ? | $ | 97 | $ ? | |||
| Variable costs | |||||||||
| Direct materials | $ | 15 | $ | 15 | |||||
| Direct labor | 15 | ? | |||||||
| Variable manufacturing overhead | 9 | 9 | |||||||
| Total variable manufacturing costs | 39 | ? | |||||||
| Contribution margin | $ | 58 | ? | $ | 61 | ? | |||
| Fixed manufacturing costs | $ 1,140,000 | $ 2,230,000 | |||||||
| Net operating income | ? | ? | |||||||
PA11-2 Part 3
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
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