Chapter 15, Problem 15.29BE

Sustainability and CVP concepts (Learning Objective 1)

Killian Garage Doors manufactures a premium garage door. Currently, the price and cost data associated with the premium garage door are as follows:

Average selling price per premium garage door	$ 1,800
Average variable manufacturing cost per door	$ 700
Average variable selling cost per door	$ 200
Total annual fixed costs	$ 198,000

Killian Garage Doors has undertaken several sustainability projects over the past few years. Management is currently evaluating whether to develop a comprehensive software control system for its manufacturing operations that would significantly reduce scrap and waste generated during the manufacturing process. If the company were to implement this software control system in its manufacturing operations, use of the software control system would result in an increase of $72,000 in its annual fixed costs, while the average variable manufacturing cost per door would drop by $180.

Requirements

1. 1. What is the company’s current breakeven point in units and in dollars?
2. 2. If the company expects to sell 280 premium garage doors in the upcoming year, and it does not develop the software control system, what is its expected operating income from premium garage doors?
3. 3. If the software control system were to be developed and implemented, what would be the company’s new breakeven point in units and in dollars?
4. 4. If the company expects to sell 280 premium garage doors in the upcoming year, and it develops the software control system, what is its expected operating income from premium garage doors?
5. 5. If the company expects to sell 280 premium garage doors in the upcoming year, do you think the company should implement the software control system? Why or why not? What factors should the company consider?