1.An airplane company has fixed costs of $100 million and variable costs per air
ID: 356283 • Letter: 1
Question
1.An airplane company has fixed costs of $100 million and variable costs per airplane of $2 million. Each airplane sells for $3 million each. What is the company's break-even point in terms of the number of airplanes that need to be sold just to break-even? Show all work.
2.For the same airplane company as Question 1; if the company wants to make a profit of $99 million in one year, how many planes will it have to sell? Show all work.
3.For the same airplane company in Question 1, if the company can produce 5 airplanes per week, how much annual profit will the company make in the first year? Show all work
Explanation / Answer
1. Break even quantity = Fixed cost/(Selling price - Varable cost)
= 100/(3-2)
= 100 planes
2. Profit = 99 million
To make profit of 99 million, we must also have to first break even and then make 99 million
Quantity = (Profit + Fixed cost)/(Selling price - Varable cost)
= (99+100)/(3-2)
= 199
3. Total planes per year = 5*52 = 260
260 = (profit+100)/(3-2)
Profit = $160 million
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