Question
In: Accounting
Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating...
Required information
[The following information applies to the questions
displayed below.]
Beacon Company is considering automating its production facility.
The initial investment in automation would be $6.41 million, and
the equipment has a useful life of 5 years with a residual value of
$1,160,000. The company will use straight-line depreciation. Beacon
could expect a production increase of 48,000 units per year and a
reduction of 20 percent in the labor cost per unit.
| Current (no automation) | Proposed (automation) | ||||||||
| 73,000 units | 121,000 units | ||||||||
| Production and sales volume | Per Unit | Total | Per Unit | Total | |||||
| Sales revenue | $ | 92 | $ ? | $ | 92 | $ ? | |||
| Variable costs | |||||||||
| Direct materials | $ | 18 | $ | 18 | |||||
| Direct labor | 20 | ? | |||||||
| Variable manufacturing overhead | 10 | 10 | |||||||
| Total variable manufacturing costs | 48 | ? | |||||||
| Contribution margin | $ | 44 | ? | $ | 48 | ? | |||
| Fixed manufacturing costs | $ 1,170,000 | $ 2,280,000 | |||||||
| Net operating income | ? | ? | |||||||
5. Recalculate the NPV using a 8 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.)
NPV________________
Solutions
Expert Solution
ANSWER
| Current(No Automation) | Proposed (Automation) | |||||
| 73000 | 121000 | |||||
| Per unit | Total |
|
Total | Difference | ||
| Sales Revenue | $92 | $6,716,000 | $92 | $11,132,000 | $4,416,000 | |
| Variable cost | ||||||
| Direct Material | $18 | $1,314,000 | $18 | $2,178,000 | $864,000 | |
| Direct Labour (20*80%) | $20 | $1,460,000 | $16 | $1,936,000 | $476,000 | |
| Variable Manufacturing OH | $10 | $730,000 | $10 | $1,210,000 | $480,000 | |
| Less: Total Variable manufacturing cost | $48 | $3,504,000 | $44 | $5,324,000 | $1,820,000 | |
| Contribution Margin | $44 | $3,212,000 | $48 | $5,808,000 | $2,596,000 | |
| Less: Fixed Manufacturing costs | $1,170,000 | $2,280,000 | $1,110,000 | |||
| Net operating Income | $2,042,000 | $3,528,000 | $1,486,000 | |||
| Computation of Present Value | |
| Annual Net Operating Income | $1,486,000.00 |
| Cumm PVAF @ 8% for 5 Year | 3.99271 |
| PV of Annual Cash Flow (C=AXB) | $5,933,167.06 |
| PV of Residual Value (116000X0.68058) | $78,947.28 |
| Presetn Value of Cash Inflow ( C+D) | $6,012,114.34 |
| Less: Initial Investment | $6,410,000.00 |
| NPV | -$397,885.66 |
_____________________________________________
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ekkarill92 answered 1 year agoRelated Solutions
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Required information
[The following information applies to the questions
displayed below.]
Beacon Company is considering automating its production facility.
The initial investment in automation would be $6.41 million, and
the equipment has a useful life of 5 years with a residual value of
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could expect a production increase of 48,000 units per year and a
reduction of 20 percent in the labor cost per unit.
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