Managerial Accounting
3rd Edition
ISBN: 9780077826482
Author: Stacey M Whitecotton Associate Professor, Robert Libby, Fred Phillips Associate Professor
Publisher: McGraw-Hill Education
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Chapter 11, Problem 2.1GBP
To determine
Concept introduction:
Capital budgeting is the decision in which a company can invest funds of a long-term nature which provides benefit in long term. Capital budgeting decisions involve huge amount of funds.
To calculate:
The following table and summarize the difference in the alternatives.
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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 $6.20
million, and the equipment has a useful life of 5 years with a residual value of $1,100,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 31,000 units per year and a reduction of 20 percent in the
labor cost per unit.
Production and sales volume
Sales revenue
Variable costs
Direct materials
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin
Fixed manufacturing costs
Net operating income
Current (no automation)
88,000 units
Net present value
Per Unit
$93
$16
12124
25
52
$ 41
Total
$7
7
1,090,000
2
Proposed (automation)
119,000 units
Per Unit
$93
$ 16
7
11
?
$46
Total
$7
7
2,280,000
2
Required:
5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1. Present Value of…
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 $7.52
million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Production and sales volume
Sales revenue
Variable costs
Direct materials.
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin
Fixed manufacturing costs
Net operating income
Current (no automation) 81,000 Proposed (automation) 128,000
units
units
Net present value
Per Unit
$94
$ 17
30
9
56
$ 38
Total
$ ?
?
1,240,000
?
Per Unit
$94
$ 17
?
9
?
$44
Total
$?
?
2,200,000
?
Required:
5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1. Present Value of…
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 $7.52
million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Production and sales volume
Sales revenue
Variable costs
Direct materials
Direct labor.
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin
Fixed manufacturing costs
Net operating income
Current (no automation) 81,000 Proposed (automation) 128,000
units
units
Net present value
Per Unit
$94
$17
30
9
56
$38
Total
$ ?
?
1,240,000
?
Per Unit
$94
$17
P
9
?
$44
Total
$ ?
?
2,200,000
Required:
4. Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed…
Chapter 11 Solutions
Managerial Accounting
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Which capital budgeting methods incorporate the...Ch. 11 - What is a company’s hurdle rate? How is it...Ch. 11 - How do cash flow and net income differ? Explain...Ch. 11 - In everyday terms, explain what information the...Ch. 11 - What do a positive NPV and a negative NPV indicate...Ch. 11 - Prob. 9QCh. 11 - Prob. 10Q
Ch. 11 - Why is the net present value method generally...Ch. 11 - Briefly explain how the profitability mdcx is...Ch. 11 - Prob. 13QCh. 11 - Prob. 14QCh. 11 - Prob. 15QCh. 11 - When would you use the PV of annuity table instead...Ch. 11 - Prob. 17QCh. 11 - Which of the following requires managers to...Ch. 11 - Prob. 2MCCh. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Prob. 5MCCh. 11 - Prob. 6MCCh. 11 - Prob. 7MCCh. 11 - Prob. 8MCCh. 11 - Prob. 9MCCh. 11 - Prob. 10MCCh. 11 - Matching Key Terms and Concepts to DefinitionsCh. 11 - Prob. 2MECh. 11 - Prob. 3MECh. 11 - Prob. 4MECh. 11 - Prob. 5MECh. 11 - Prob. 6MECh. 11 - Prob. 7MECh. 11 - Prob. 8MECh. 11 - Computing Present Value of Complex Contract As a...Ch. 11 - Prob. 11MECh. 11 - Prob. 12MECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Using NPV to Evaluate Mutually Exclusive Projects...Ch. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 1.1GAPCh. 11 - Prob. 1.2GAPCh. 11 - Prob. 1.3GAPCh. 11 - Prob. 1.4GAPCh. 11 - Prob. 1.5GAPCh. 11 - Prob. 2.1GAPCh. 11 - Prob. 2.2GAPCh. 11 - Prob. 2.3GAPCh. 11 - Prob. 2.4GAPCh. 11 - Prob. 2.5GAPCh. 11 - Making Automation Decision Beacon Company is...Ch. 11 - Prob. 3.1GAPCh. 11 - Prob. 3.2GAPCh. 11 - Prob. 3.3GAPCh. 11 - Prob. 3.4GAPCh. 11 - Prob. 4.1GAPCh. 11 - Prob. 4.2GAPCh. 11 - Prob. 4.3GAPCh. 11 - Prob. 4.4GAPCh. 11 - Prob. 4.5GAPCh. 11 - Prob. 5.1GAPCh. 11 - Prob. 5.2GAPCh. 11 - Prob. 6.1GAPCh. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Evaluating Sustainability Projects Citco Company...Ch. 11 - Prob. 1.1GBPCh. 11 - Prob. 1.2GBPCh. 11 - Prob. 1.3GBPCh. 11 - Prob. 1.4GBPCh. 11 - Prob. 1.5GBPCh. 11 - Prob. 2.1GBPCh. 11 - Prob. 2.2GBPCh. 11 - Prob. 2.3GBPCh. 11 - Prob. 2.4GBPCh. 11 - Prob. 2.5GBPCh. 11 - Prob. 2.6GBPCh. 11 - Prob. 3.1GBPCh. 11 - Comparing, Prioritizing Multiple Projects Harmony...Ch. 11 - Prob. 3.3GBPCh. 11 - Prob. 3.4GBPCh. 11 - Prob. 4.1GBPCh. 11 - Prob. 4.2GBPCh. 11 - Prob. 4.3GBPCh. 11 - Prob. 4.4GBPCh. 11 - Prob. 4.5GBPCh. 11 - Prob. 5.1GBPCh. 11 - Prob. 5.2GBPCh. 11 - Prob. 6.1GBPCh. 11 - Prob. 6.2GBPCh. 11 - Prob. 6.3GBPCh. 11 - Prob. 6.4GBP
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