philidor
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Post by philidor on Feb 4, 2020 18:01:27 GMT 1
The above is another misinformed comment : the 787 deferred production costs and programme break even are only loosely related ! Boeing has obviously been booking profits from the 787 programme for several years, so that programme break even should happen well before the deferred costs have ben cleared, though only Boeing has an idea of the timeline. Not exactly.... Unless you are telling me Boeing has been booked 18.7B revenue from 787, the program is not break even yet ..... I never said the programme had already reached break-even. On the contrary, I said I think break-even should happen well before the deferred costs have ben cleared, as I assume that the 787 cumulated result since the beginning of deliveries is positive, and increasing year after year. I have no idea of the timeline to reach break-even, but I doubt that at this stage the cumulated result is already enough to offset the deferred production costs that are still on the books. |
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philidor
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Post by philidor on Feb 4, 2020 18:25:55 GMT 1
with program accounting, you can always book profit from the first frame if you wish .... I doubt it, no need to exagerate ! In programme accounting, you book the actual sales price and the predicted average production cost. As launch prices are low, and production pace is slow, you are unlikely to make a profit from the outstart. It takes some time to reach that point, though your initial losses are indeed mitigated. As regards cost forecasts, they are not easy to manipulate since they must be justified, over many years, to market regulators. Anyhow, a large spread between forecasts and reality would spur a reaction from financial markets. That's why Boeing had to increase its accounting quantity (also called 'accounting block') several times to avoid falling into a forward-loss position. |
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philidor
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Post by philidor on Feb 4, 2020 18:41:07 GMT 1
Again, the program will break even long before deferred cost block is zero. That is true, and I have been saying the same in my above posts. Of course, that doesn't mean that break-even is coming soon. I have, however, a doubt about development costs at Boeing. They are part of the company current expenses, though I remember reading that they aren't split between the different programmes on a real basis (because that would be impossible to do), and that they are instead treated as overhead. Have you information on that point ? The reason I mention this is that if the 787 programme incurs its share of that overhead, then there are no additional development costs to factor in before break-even. |
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Post by kevin5345179 on Feb 4, 2020 21:15:19 GMT 1
with program accounting, you can always book profit from the first frame if you wish .... I doubt it, no need to exagerate ! In programme accounting, you book the actual sales price and the predicted average production cost. As launch prices are low, and production pace is slow, you are unlikely to make a profit from the outstart. It takes some time to reach that point, though your initial losses are indeed mitigated. As regards cost forecasts, they are not easy to manipulate since they must be justified, over many years, to market regulators. Anyhow, a large spread between forecasts and reality would spur a reaction from financial markets. That's why Boeing had to increase its accounting quantity (also called 'accounting block') several times to avoid falling into a forward-loss position. For the production cost, you are predicting based on your predicting learning curve which may not be accurate to start it with. 787 was targeting at 70% learning curve (74% is 777 and more outsourcing for 787). At the end of the day, learning curve looks more like 80% ..... Also, you still have the accounting block number that you can play around with. Boeing has been jumping on 787 accounting block like crazy while other program typically set at 400 and this all started from McNerny. |
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sciing
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Post by sciing on Feb 4, 2020 22:09:45 GMT 1
I doubt it, no need to exagerate ! In programme accounting, you book the actual sales price and the predicted average production cost. As launch prices are low, and production pace is slow, you are unlikely to make a profit from the outstart. It takes some time to reach that point, though your initial losses are indeed mitigated. As regards cost forecasts, they are not easy to manipulate since they must be justified, over many years, to market regulators. Anyhow, a large spread between forecasts and reality would spur a reaction from financial markets. That's why Boeing had to increase its accounting quantity (also called 'accounting block') several times to avoid falling into a forward-loss position. You don't have to book actual sales price. That's the inaccurate assumption. How do you book "actual" sales price This is called revenue and is usually booked on delivery. What do you suggest? What you mix up is what kind of cost are booked. For program accounting you book the predicted average cost on delivery instead of the real ones in the time frame. |
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Post by kevin5345179 on Feb 4, 2020 22:25:05 GMT 1
You don't have to book actual sales price. That's the inaccurate assumption. How do you book "actual" sales price This is called revenue and is usually booked on delivery. What do you suggest? What you mix up is what kind of cost are booked. For program accounting you book the predicted average cost on delivery instead of the real ones in the time frame. Can you read the discussion and my response again? I should rephrase as it is not possible for program accounting to include actual sales prices since you always have your accounting block larger than your actual total order. I didn't say the cost is not predicted avg cost. What I'm trying to point out is under 1600 or whatever number of accounting block, cost from frame 1 to frame 1600 is predicted based on the learning curve you estimated. That learning curve estimation itself can be inaccurate. If that learning curve is inaccurate, how do you accurate predict your avg cost. |
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sciing
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Post by sciing on Feb 4, 2020 22:28:56 GMT 1
Again, the program will break even long before deferred cost block is zero. That is true, and I have been saying the same in my above posts. Of course, that doesn't mean that break-even is coming soon. I have, however, a doubt about development costs at Boeing. They are part of the company current expenses, though I remember reading that they aren't split between the different programmes on a real basis (because that would be impossible to do), and that they are instead treated as overhead. Have you information on that point ? The reason I mention this is that if the 787 programme incurs its share of that overhead, then there are no additional development costs to factor in before break-even. In the end it is kind of definitions. Some people claim it is about 16B, I don‘t care. www.seattletimes.com/business/boeing-celebrates-787-delivery-as-programs-costs-top-32-billion/But if you do some kind of program break even calculation you may include it. As you know for the actual program it is completely irrelevant. Today you look what you earn with each frame build and delivered now. I am just in the discussion because I am annoyed by the very common misunderstanding of deferred cost. Many people understand it as profit/loss as difference revenue and real production cost. That’s why I really liked your 1st comment. |
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mjoelnir
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Post by mjoelnir on Feb 4, 2020 22:33:57 GMT 1
That is true, and I have been saying the same in my above posts. Of course, that doesn't mean that break-even is coming soon. I have, however, a doubt about development costs at Boeing. They are part of the company current expenses, though I remember reading that they aren't split between the different programmes on a real basis (because that would be impossible to do), and that they are instead treated as overhead. Have you information on that point ? The reason I mention this is that if the 787 programme incurs its share of that overhead, then there are no additional development costs to factor in before break-even. In the end it is kind of definitions. Some people claim it is about 16B, I don‘t care. www.seattletimes.com/business/boeing-celebrates-787-delivery-as-programs-costs-top-32-billion/But if you do some kind of program break even calculation you may include it. As you know for the actual program it is completely irrelevant. Today you look what you earn with each frame build and delivered now. I am just in the discussion because I am annoyed by the very common misunderstanding of deferred cost. Many people understand it as profit/loss as difference revenue and real production cost. That’s why I really liked your 1st comment. That thinking is acceptable when you do normal accounting. But with Boeing and program accounting the 787 program still has to eat a 20 billion loss. That amount has not been written to cost. If it is not eaten by the 787 program, it has to be declared as a loss. And I think the misunderstanding about deferred cost is with you, the deferred cost is part of the real production cost. It is the part that has been written to inventory, rather than cost. |
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sciing
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Post by sciing on Feb 4, 2020 22:37:07 GMT 1
This is called revenue and is usually booked on delivery. What do you suggest? What you mix up is what kind of cost are booked. For program accounting you book the predicted average cost on delivery instead of the real ones in the time frame. Can you read the discussion and my response again? I should rephrase as it is not possible for program accounting to include actual sales prices since you always have your accounting block larger than your actual total order. I didn't say the cost is not predicted avg cost. What I'm trying to point out is under 1600 or whatever number of accounting block, cost from frame 1 to frame 1600 is predicted based on the learning curve you estimated. That learning curve estimation itself can be inaccurate. If that learning curve is inaccurate, how do you accurate predict your avg cost. [ You ask how to book price? The price is paid by the costumer on delivery and so this price goes as revenue in the books. The average cost booked is predicted by Boeing and as the cost fall you simply just have to enlarge the accounting block if your prediction was wrong. The real average cost over the 1st 1200 frames is higher than over the 1st 1600. Boeings prediction was wrong for the 1st 1200. As they could not change the predicted average cost the increased the block size. |
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Post by peter on Feb 4, 2020 22:41:53 GMT 1
Oh well, at least you tried addasih  |
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