Cost Analysis Boeing and Airbus Potential Joint Case Study

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Cost Analysis

Boeing and Airbus Potential Joint Venture: Variable Cost Analysis

In order to use the provided information in determining optimum output and price levels as well as to determine whether or not Boeing and Airbus should engage In a joint venture on the VLCT project or would be better served by each pursuing their own individual venture, the simplest approach would simply be to graph the given equations (with the relevant additional information incorporated as necessary) an analyzing variances in slope and points of intersection. This visual analysis can be used to develop direct quantitative assessments of pricing structures and costs at various levels of output, determining the most cost-effective plan of action for Boeing and Airbus both collectively and individually.

Specific components of this method of analysis will include plotting both the demand curve estimated by Boeing along with the company's estimated total variable cost (TVC) curve on the same graph. The same will be done for the two estimated curves provided by Airbus.

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This will allow a direct comparison of demand to output potentials, allowing for an initial assessment of optimal output pints or ranges. Calculation of the price of the planes that the market will bear (from the provided probability equations) will allow for the quantitative analysis of profitability at the previously identified optimum output levels, determining more certain and specific output and price points for the project. Finally, combing the two companies' estimates and graphing the resulting demand and TVC curves and engaging in the same analysis will provide a comparison of the joint venture to the two individual ventures.

Part 2

1. Given .25 probability of a price of $125 million, a .25 probability of a price of $175 million, and a .5 probability of $225 million, the estimated price of the plane would be (in millions):

(.25)125 + (.25)175 + (.5)225 = 187.5

The estimated price of the plane is $187.5 million.

2. According to Airbus estimations, demand will remain relatively steady at.....

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