Beacon Company is considering automating its productionfacility. The initial investment in automation would be $8.04million, and the equipment has a useful life of 6 years with aresidual value of $1,140,000. The company will use straight-linedepreciation. Beacon could expect a production increase of 41,000units per year and a reduction of 20 percent in the labor cost perunit.
| Current (no automation) | Proposed (automation) |
| Production and sales volume | 76,000 units | 117,000 units |
| Per Unit | Total | Per Unit | Total |
| Sales revenue | $ | 97 | ? | $ | 97 | ? |
| Variable costs | | | | | | |
| Direct materials | $ | 17 | | $ | 17 | |
| Direct labor | | 15 | | | ? | |
| Variable manufacturing overhead | | 10 | | | 10 | |
| Total variable manufacturing costs | | 42 | | | ? | |
| Contribution margin | $ | 55 | ? | $ | 58 | ? |
| Fixed manufacturing costs | | | $ 1,170,000 | | | $ 2,280,000 |
| Net operating income | | | ? | | | ? |
|
Required:
1-a. Complete the following table showing the totals.(Enter all answers in whole dollars.)
| Production and Sales Volume | $76,000 | Units | $117,000 | Units | | Per Unit | Total | Per Unit | Total | | Sales Revenue | $97 | | $97 | | | Variable Costs: | | | | | | Direct Materials | $17 | | $17 | | | Direct Labor | 15 | | | | | Variable Manufacturing Overhead | 10 | | 10 | | | Total Variable Manufacturing Costs | 42 | | | | | Contribution Margin | $55 | | $58 | | | Fixed Manufacturing Costs | | $1,170,000 | | 2,280,000 | | Net Operating Income |
|
1-b. Does Beacon Company favor automation?
3. Determine the project's payback period.(Round your answer to 2 decimal places.)
Payback period = ???
4. Using a discount rate of 13 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 appropriatefactor(s) from the tables provided. Negativeamount should be indicated by a minus sign. Enter the answer inwhole dollar. Round the final answer to nearest wholedollars.)
Net Present Value = ????
5. Recalculate the NPV using a 8% discount rate.(Future Value of $1, Present Value of $1, Future Value Annuity of$1, Present Value Annuity of $1.) (Use appropriatefactor(s) from the tables provided. Negativeamount should be indicated by a minus sign. Enter the answer inwhole dollar. Round the final answer to nearest wholedollars.)
Net Present Value = ???
