Beacon Company is considering automating its production facility. The initial investment in automation would be...
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Accounting
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.41million, and the equipment has a useful life of 9 years with a residual value of $1,140,000. The company will use straight-line depreciation. Beacon could expect a production increase of 49,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation)
Proposed (automation)
89,000 units
138,000 units
Production and sales volume
Per Unit
Total
Per Unit
Total
Sales revenue
$
92
$ ?
$
92
$ ?
Variable costs
Direct materials
$
16
$
16
Direct labor
25
?
Variable manufacturing overhead
9
9
Total variable manufacturing costs
50
?
Contribution margin
$
42
?
$
47
?
Fixed manufacturing costs
$ 1,210,000
$ 2,310,000
Net operating income
?
?
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
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