This paper is dedicated to the memory of Linda Anderson, research writer and well of wisdom. Breakeven and Sales Forecast for Z-Wing
Introduction Z-Wing is the world's largest commercial and military manufacturer and currently can claim more than 50 percent of the global market. Janssen is Z-Wing's closest competitor and recently has increased its market share to 47 percent. The industry is growing at 5 percent annually; Z-Wing will need to closely monitor and adjust its production costs and marketing strategies. Determining Breakeven Breakeven is the point at which there is neither profit nor loss on operations. If ZWing produces 38 aircraft annually and sells them for a total of $2.66 billion, it will break even if its costs are as those in Table 1. Table 1. Possible Breakeven Scenario Item Units Sales Variable Costs Contribution Margin Fixed costs Net income Derivation fixed costs/cont margin per unit fixed costs/cont margin ratio units x variable costs/unit sales - variable costs (given) zero at break-even Total 38 $ $ 2,660,000,000 70,000,000 $ $ 1,710,000,000 45,000,000 $ $ 950,000,000 25,000,000 $ 950,000,000 0 100% 64% 36% Per Unit Percentage
If Z-Wing produces and sells 42 aircraft at the same rates of fixed and variable costs, then it will gain a profit of $100 million:
Table 2. Effect of Increasing Sales Item Units Sales Variable Costs Contribution Margin Fixed costs Net income Derivation fixed costs/cont margin per unit fixed costs/cont margin ratio units x variable costs/unit