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# 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?

#### Solution Preview

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%

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.

No of ...

#### 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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