Breakeven Analysis for Boeing
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Boeing is the largest commercial airplane manufacturer in the world. In 1996, it began development of the 757-300, a 240-passenger plane with a range up to 4,010 miles. First deliveries took place in 1999, at a price of about $70 million per plane.
Assume that Boeing's annual fixed costs for the 757-300 are $950 million, and its variable cost per airplane is $45 million.
a) Compute Boeing's break-even point in number of 757-300 airplanes and in dollars of sales.
b) Suppose Boeing plans to sell forty-two 757-300 airplanes in 2002. Compute Boeing's projected operating profit.
c) Suppose Boeing increased its fixed costs by $84 million and reduced variable costs per airplane by $2 million. Compute its operating profit if forty-two 757-300 airplanes are sold. Compute the break-even point. Comment on your results.
d) Ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 10% before deliveries of 757-300 airplanes begin in 2002. Compute the new break-even point. What strategies might Boeing use to help assure profitable operations in light of increases in variable cost?
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Solution Summary
Using step by step calculations and explanations, this solution calculates break-even point, operating profit, and strategies Boeing can use to ensure profits.
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a) Compute Boeing's break-even point in number of 757-300 airplanes and in dollars of sales.
Selling Price= $70 million per plane
Variable Cost= $45 million per plane
Therefore contribution margin= $25 million per plane =70-45
In term of %= 35.71% =25/70
Annual Fixed Costs= $950 million per year
Therefore
Break even quantity= 38 planes =950/25
Break even sales= $2,660 million =950/35.71%
Answer
break-even point
in number = 38 planes
and in dollars of sales= $2,660 million
b) Suppose Boeing plans to sell forty-two 757-300 airplanes in 2002. Compute Boeing's projected operating profit.
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