Beacon Company is considering automating its production facility. The initial investment in automation would be $ million, and the equipment has a useful life of years with a residual value of $ The company will use straightline depreciation. Beacon could expect a production increase of units per year and a reduction of percent in the labor cost per unit.
Production and sales volume Current no automation units Proposed automation units
Per Unit Total Per Unit Total
Sales revenue $ $ $ $
Variable costs
Direct materials $ $
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin $ $
Fixed manufacturing costs
Net operating income
Required:
Determine the project's payback period.
