Boeing Corporation (formerly McDonnell Douglas Corporation) manufactures the C-17, the most flexible jet transport used by the U.S. Air Force. The company originally sold the C-17 for a “flyaway cost” of $175 million per jet. The variable production cost of each C-17 was estimated to be approximately $165 million. When the C-17 was first proposed in 1981, the Air Force expected to eventually purchase 400 jets. However, as of June 2011, only 232 C-17s have been produced and sold.
Production began, and at one point the company was faced with the following situation: With 20 jets finished, a block of 20 more in production, and funding approved for the purchase of a third block of 20 jets, the U.S. Congress began indicating that it would approve funding for the order and purchase of only 20 more jets (for a total of 80). This was a problem for the company because company officials had indicated previously that the break-even point for the C-17 project was around 100 aircraft.
Required
• A. Given the previous facts concerning the sales price, variable cost, and break-even point, what were McDonnell Douglas’s fixed costs associated with the development of the C-17?
• B. What would the income or loss be if the company sold only 80 C-17s?
• C. Assume that McDonnell Douglas had been told up front that the Air Force would buy only 80 jets. Calculate the selling price per jet that the company would have to charge to achieve a target profit (before tax) of $10 million per jet.
• D. Assuming that the costs and sales price of the jet have remained the same over the years, how much income have McDonnell Douglas and Boeing made from the sale of the C-17?
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Calculating the optimum mix of products to produce given limited resources and demand constraints is addressed in Chapter 7. The optimum mix will result in the highest overall contribution margin and also the highest overall profit for a company

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