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The fictitious information was used only because Boeing didn’t provide a breakdown of costs per program.
Let’s assume that Boeing's annual fixed cost for the 737-900ER are $980 million, and its variable cost per airplane is $65 million. In order to calculate the break even point, the contribution margin for each plane must first be calculated as follows (Note: Assuming the price of the plane is $89,000,000):
1. Sales price - Variable cost per plane: 89-65=24 million
Next, since the total fixed cost is given, the break even point can be calculated.
2. Break even point= 980/24= 40.83 planes
Thus, Boeing needs to sell approximately 41 airplanes in order to achieve their break even point...
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