Question - Assume that a commercial airplane manufacturing company's annual fixed costs for the widebody 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 widebody passenger jets and in dollars of sales.
2. Suppose the company plans to sell 99 widebody 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 widebody 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 widebody 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?