Required information [The following information applies to the questions displayed below.] Beacon Company is considering...
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Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight-line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit.
| Production and sales volume | Current (no automation) 80,000 units | Proposed (automation) 120,000 units | ||
|---|---|---|---|---|
| Per Unit | Total | Per Unit | Total | |
| Sales revenue | $ 90 | $ ? | $ 90 | $ ? |
| Variable costs | ||||
| Direct materials | $ 18 | $ 18 | ||
| Direct labor | 25 | ? | ||
| Variable manufacturing overhead | 10 | 10 | ||
| Total variable manufacturing costs | 53 | ? | ||
| Contribution margin | $ 37 | ? | $ 42 | ? |
| Fixed manufacturing costs | 1,250,000 | 2,350,000 | ||
| Net operating income | ? | ? | ||
Required:
3. Determine the project's payback period.
Note: Round your answer to 2 decimal places.
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