# CVP analysis-Breakeven Analysis

JetSet Machinations, Inc. expects to become very successful in the manufacture and sales of its fuel-efficient high speed airplane, the S2S-900. This plane will be sold at about $70 million per plane. JMI executive staff has asked you to provide them a slide presentation in the next staff meeting which gives calculations for profit and break-even. This presentation will be the basis of the meeting discussion.

Assume that JMI's annual fixed costs for the S2S-900 are $950 million, and its variable cost per airplane is $45 million.

1. Compute JMI's break-even point for the number of S2S-900 airplanes and dollars of sales.

2. Suppose JMI plans to sell forty-two S2S-900 airplanes in 2002. Compute JMI's projected operating profit.

3. Suppose JMI increased its fixed costs by $84 million and reduced variable costs per airplane by $2 million. Compute its operating profit if forty-two S2S-900 airplanes are sold. Compute the break-even point. Comment on your results.

4. Next, ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 10% before deliveries of S2S-900 airplanes begin for the year. Compute the new break-even point.

Individual portion- Build your own spreadsheet for these calculations:

1. What would happen to expected cash flows under different discount rates?

2. How will the present value of the project vary according to cash flows different from a set forecast?

3. Create test numbers to show the effects under varying circumstances.

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#### Solution Summary

Answers to questions on Breakeven Analysis.