Question: 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?