3. Boring is the one of the largest commercial airplane manufacturers. In 2007, it began development of the 7V7-III, a 240-passenger plane with a range up to 4010 miles. First deliveries will take place in 2010. The price will be about US$70 million per plane. Assume the annual fixed costs for the 7V7-III are US$950 million and its variable cost per 7V7-III is US$45 million.

Required:

a) How many planes does Boring need to sell in order to break-even?

b) If Boring managed to clinch contracts for 42 planes in 2010, then what would be its projected operating profit? If Boring automated its production process further and increased its fixed costs by US$84 million then it can achieve a reduction of variable cost per airplane by US$2 million.

c) What are the break-even point?

d) the operating profit if 42 planes will be sold in 2010?

e) Your comments on the results? Ignore question (c) to (e) above. If fixed costs do not change but variable costs increase by 10% before deliveries of any airplanes in 2010.

f) What is the new break-even point?

g) What strategies might Boring use to help assure profitable operations in light of increases in variable costs?