Reference no: EM132511070

Doghayis 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 $40million.

Required:

Question (a) How many planes does Doghayneed to sell in order to break-even?

Question (b) If Doghayautomated its production process further and increased its fixed costs by $120 million then it can achieve a reduction of variable cost per airplane by $3million.

What are

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

ii. your comments on the results?

Question (c) 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 pointin dollar sales;and

ii. advise what strategies Doghaymight use to ensure profitable operations with increase in variable costs?