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Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60...

Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60 million, and the equipment has a useful life of 8 years with a residual value of $1,120,000. The company will use straight-line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit.

Current (no automation) Proposed (automation)
77,000 units 115,000 units
Production and sales volume Per Unit Total Per Unit Total
Sales revenue $ 93 $ ? $ 93 $ ?
Variable costs
Direct materials $ 16 $ 16
Direct labor 20 ?
Variable manufacturing overhead 11 11
Total variable manufacturing costs 47 ?
Contribution margin $ 46 ? $ 50 ?
Fixed manufacturing costs $ 1,090,000 $ 2,290,000
Net operating income ? ?

PA11-2 Part 1

Required:
1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.)


Business   Accounting   
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Answer #1

Calculate following

Current (no automation) Proposed (automation)
77,000 units 115,000 units
Production and sales volume Per Unit Total Per Unit Total
Sales revenue $ 93 $7161000 $ 93 $10695000
Variable costs
Direct materials $ 16 $ 16
Direct labor 20 20*80% = 16
Variable manufacturing overhead 11 11
Total variable manufacturing costs 47 43
Contribution margin $ 46 3542000 $ 50 5750000
Fixed manufacturing costs $ 1,090,000 $ 2,290,000
Net operating income 2452000 3460000
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