Doghay is the one of the largest commercial airplane manufacturers. In 2017, it began development of the 797-III, a 280-passenger plane with a range up to 4.800 miles. First deliveries will take place in 2021. The price will be about $70 million per plane. 

Assume the annual fixed costs for the 797-III are $900 million and its variable cost per 797-III is $40 million. 

Required: 

(a) If Doghay automated its production process further and increased its fixed costs by S120 million then it can achieve a reduction of variable cost per airplane by $3 million. What are

i. the operating profit if 40 planes will be sold in 2021;

ii. your comments on the results?

b) Ignore question (b) above. If fixed costs do not change but variable costs increase by 25% before deliveries of any airplanes in 2021, 

i. compute the new break-even point in dollar sales,

 ii advise what strategies Doghay might use to ensure profitable operations with increase in variable costs?

Answer rating: 100% (QA)

Price per plane 70 million Number of passenger capacity 280 Range of the plane 4800 miles a Annual r... View the full answer