ormation applies questions displayed below Beacon Company is considering automating its production facility. The initial investment in automation would be $9.48 million, and the equipment has a useful life of 7 years with a residual value of $1,150,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit. 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 Current (no automation) 88,000 units Per Unit $95 $18 20 10 48 $47 Total $? ? $ 1,250,000 ? Proposed (automation) 124,000 units Per Unit Total $95 $? $18 ? 10 ? $51 ? $2,270,000 ?
ormation applies questions displayed below Beacon Company is considering automating its production facility. The initial investment in automation would be $9.48 million, and the equipment has a useful life of 7 years with a residual value of $1,150,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit. 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 Current (no automation) 88,000 units Per Unit $95 $18 20 10 48 $47 Total $? ? $ 1,250,000 ? Proposed (automation) 124,000 units Per Unit Total $95 $? $18 ? 10 ? $51 ? $2,270,000 ?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 18P
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