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Managerial Accounting for Commercial Airplane Manufacturing Company

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Assume that a commercial airplane manufacturing company's annual fixed costs for the wide-body passenger jet are $1,425 million, and its variable cost per airplane is $90 million. The price for a 240-passenger plane with a range up to 4,010 miles is about $105 million per plane.

1. Compute the company's break-even point in number of wide-body passenger jets and in dollars of sales.
2. Suppose the company plans to sell 99 wide-body passenger jets in 2012. Compute the company's projected operating profit.
3. Suppose the company increased its fixed costs by $126 million and reduced variable costs per airplane by $4 million. Compute its operating profit if 99 wide-body passenger jets are sold. Compute the break-even point. Comment on your results.
4. Ignore requirement 3. Suppose fixed costs do not change, but variable costs increase by 5% before deliveries of wide-body passenger jets begin in 2012. Compute the new break-even point. What strategies might the company use to help assure profitable operations in light of increases in variable cost?

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The solution discusses managerial accounting for commercial airplane manufacturing company.

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