Required information [The following information applies to the questions displayed below.] Beacon Company is considering...
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[The following information applies to the questions displayed below.]
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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