A PROPOSAL FOR Increased Profitability by Resolving Unclear Accounting Methods Prepared for Dennis Muilenburg Chief Executive Officer, The Boeing Company By Roshani Dabadi Business Major at San Francisco University -- Concentration in Accounting March 30, 2017 2 Transmittal Letter Roshani Dabadi 1728 Liberty St. El Cerrito, CA 94530 Dennis Muilenburg Chief Executive Officer Boeing Capital Corporation 100 N. Riverside Plaza Chicago, Illinois 60606 Dear Mr. Muilenburg, I hold Boeing in a very high regard since it is a unique company with high market potentials and source of pride for our national economy. Through my thorough research of Boeing’s stock market history, I have created this proposal to solve the problem of program accounting causing unpredictable drops in the company’s market prices and driving away its potential investors. While middle-income investors have the highest stake in this problem, program accounting also impedes Boeing’s capital growth and market standing. Boeing’s share value has dropped to its lowest in the stock market due to the multiple probes by the U.S. Securities and Commission for program accounting’s overestimated income projections and sudden bookings of loss. To protect the company from losing its name and to re-establish the company’s market position, Boeing should restore unquestionable clarity in its financial statements by changing the method to unit-cost accounting. The benefits of unit-cost accounting far outweigh the current accounting method. They include a stable market standing, more investors’ returns, increased capital with higher revenues, better understanding of the company’s financial transactions, better control over the company’s expenses and last but not the least, higher esteem among the public for up-keeping transparency. Thank you for your consideration and I hope that we can meet to discuss the benefits of changing Boeing’s accounting to unit-cost method and the increased market opportunities it will bring to the company. Sincerely, Roshani Dabadi 3 Table of Contents Executive Summary 4 Introduction 5 Problem/Need Statement Analysis 6 Solution Analysis 10 Work Plan 12 Budget/Cost Analysis 13 Evaluation 14 Conclusion 15 References 16 4 Executive Summary Boeing is losing investors because the method Boeing uses to record its profits and costs is inaccurate and, at times, dishonest. To solve this problem, Boeing should switch back to the conventional method, unit-cost accounting for an improved and clear financial disclosure. The proposed work plan will take about seven months starting June 2017, when the company finishes its second quarterly report for this year. The estimated cost of the project from beginning to the end while keeping the costs at their minimum is roughly $822,400. It will prove to be a worthy investment for the company’s betterme ...

1. A PROPOSAL FOR
Increased Profitability by
Resolving Unclear Accounting Methods
Prepared for
Dennis Muilenburg
Chief Executive Officer, The Boeing Company
By
Roshani Dabadi
Business Major at San Francisco University -- Concentration in
Accounting
March 30, 2017
2

2. Transmittal Letter
Roshani Dabadi
1728 Liberty St.
El Cerrito, CA 94530
Dennis Muilenburg
Chief Executive Officer
Boeing Capital Corporation
100 N. Riverside Plaza
Chicago, Illinois 60606
Dear Mr. Muilenburg,
I hold Boeing in a very high regard since it is a unique company
with high
market potentials and source of pride for our national economy.
Through my
thorough research of Boeing’s stock market history, I have
created this
proposal to solve the problem of program accounting causing
unpredictable
drops in the company’s market prices and driving away its
potential investors.
While middle-income investors have the highest stake in this
problem, program
accounting also impedes Boeing’s capital growth and market
standing.
Boeing’s share value has dropped to its lowest in the stock
market due to the
multiple probes by the U.S. Securities and Commission for
program
accounting’s overestimated income projections and sudden
bookings of loss. To

3. protect the company from losing its name and to re-establish the
company’s
market position, Boeing should restore unquestionable clarity in
its financial
statements by changing the method to unit-cost accounting.
The benefits of unit-cost accounting far outweigh the current
accounting
method. They include a stable market standing, more investors’
returns,
increased capital with higher revenues, better understanding of
the company’s
financial transactions, better control over the company’s
expenses and last but
not the least, higher esteem among the public for up-keeping
transparency.
Thank you for your consideration and I hope that we can meet
to discuss the
benefits of changing Boeing’s accounting to unit-cost method
and the increased
market opportunities it will bring to the company.
Sincerely,
Roshani Dabadi
3
Table of Contents
Executive Summary 4
Introduction 5

4. Problem/Need Statement Analysis 6
Solution
Analysis 10
Work Plan 12
Budget/Cost Analysis 13
Evaluation 14
Conclusion 15
References 16
4
Executive Summary

5. Boeing is losing investors because the method Boeing uses to
record its profits
and costs is inaccurate and, at times, dishonest. To solve this
problem, Boeing
should switch back to the conventional method, unit-cost
accounting for an
improved and clear financial disclosure.
The proposed work plan will take about seven months starting
June 2017,
when the company finishes its second quarterly report for this
year. The
estimated cost of the project from beginning to the end while
keeping the
costs at their minimum is roughly $822,400. It will prove to be
a worthy
investment for the company’s betterment in the long run and the
market
potentials the change will bring.

6. 5
Introduction
Boeing is losing out on investors and its market share prices due
to its current
accounting method. To alleviate market volatility and
uncertainty among
investors, Boeing should adopt a clear accounting method, unit-
cost
accounting. By adopting unit-cost accounting, Boeing can
maintain
transparency, restore people’s faith in the company, grow the
company’s
capital and reclaim its position in the market as the strongest
and most reliable
aerospace company.
Contact Information:
Roshani Dabadi
[email protected]

7. 1728 Liberty St
El Cerrito, CA 94530
(510) 407-7149
Written for:
Dennis Muilenburg
Chief Executive Officer
Boeing Capital Corporation
100 N. Riverside Plaza
Chicago, Illinois 60606
Written on:
March 30, 2017
Effective Start Date for Work Plan:
June 01, 2017
6
Problem/Need Statement and Analysis

8. The Problem:
Program accounting has driven Boeing into accounting practices
that obscure
the actual productions costs of their projects and mislead the
investors. For
instance, the loss incurred on each plane the company makes
does not show up
on the quarterly balance sheets at all (Ausick 2016). It is tough
to make
reasonable judgment calls for the investors of Boeing when the
company only
makes estimates of their production costs instead of booking its
costs as they
occur.
When the company makes a cost estimate of the entire project
and then
divides the cost evenly throughout all the planes assigned to
that time frame,
the result is an exaggerated amount of company profits. That
misrepresents
the company’s financial handlings and causes inaccurate

9. economic forecasts.
As per Ausick (2016), earnings from operations in 2015 under
the program
accounting method totaled $5.157 billion. Under the unit cost
method,
earnings from operations would have totaled $2.669 billion. The
earnings are
nearly doubled by the program accounting method even though
the actual
earnings are half of that amount. For investors, that appears
deceptive, making
it impossible for anyone to gauge the business accurately with
such
inconsistencies.
Boeing’s 787 Dreamliner project had significant delays due to
raw materials,
electric systems and complex supply chain. Even though the
company had to
bear heavy losses, Boeing reported a small profit on each plane
sold. The
company records a loss only when the program reaches a point
where earnings
would not cover the losses incurred. When the sunk costs
exceed the estimated

10. profits before the completion of the project, the company will
have to file for
a loss. The sudden drop in stock values causes turmoil in the
stock market and
investors to lose their hard-earned money, thus, risking the
company’s
credibility as well.
As Bryant (2016) states in Chicago Business, Boeing has
accrued $28.5 billion in
"deferred production costs" on the 787, plus $3.9 billion in
unamortized tooling
and other costs, bringing the total to more than $32 billion. To
make it worse,
the number actually underestimates Boeing's total losses on the
787 program
because the company also spent billions of dollars on R&D
prior to the plane's
launch. When the company spreads out its profits on a plane-by-
plane basis and
estimates the profits they would accrue in years to come, it
renders the total
estimated profits deceptive of the current status of the company.
This kind of
confusing accounting causes unnatural market volatility that

11. puts investors at a
high risk of losing money, which will eventually result in the
company losing its
standing in the market.
7
The misrepresentation of profits and losses has caused the U.S.
Securities and
Exchange Commission to scrutinize Boeing’s accounting
method as well. Every
the S.E.C. probes a company, it hurts the company’s stock
values and market
reputation. If Boeing continues using program accounting to
make its financial
estimates, the company will face many such investigations in
future and that
makes the company’s market standing even more uncertain.

13. 8
Who/What the Problem Affects:
Professionals and laypersons dabbling in stock investments are
both affected
adversely by market volatility caused by program accounting.
According to
Markman (2014), middle class households have the highest
contribution in the
stock market. Losing confidence in the stock market can drive
the middle-
income families completely out of the market because they are
already more

14. risk averse and the market volatility shakes their faith in the
system even
more. (Kurtzleben, 2012) People buy shares or invest because
they find the
company doing well as per its profit reports. A sudden report of
a financial loss
by the company or sudden fluctuations in the share prices
negatively affect
many investors’ lives.
Given that Boeing is a top producer of commercial aircraft and
deals with a
wide variety of jetliners designed to meet the needs of millions
of passengers
worldwide, the company’s accounting choices undoubtedly have
many
repercussions on people’s lives apart from the investment side
of it. Its market
success plays an important role in supporting aerospace jobs
across its supply
chain and across the United States. In 2015 alone, Boeing paid
nearly $50
billion to more than 13,600 businesses, supporting an additional
1.5 million
supplier-related jobs in the United States. (Boeing, 2015) If

15. Boeing does not do
well as a company, that eventually means less market for its
suppliers and for
the workers at Boeing as well.
In addition to that, Boeing itself has a high stake in the problem
because
through the stock market, publicly traded companies raise
money for its growth
and development. Since Boeing has been publicly traded for
years now, it must
maintain a positive trend in its share values. Increasing the
company’s capital
is only possible through proper planning for costs and budgeting
that builds a
clear understanding of its future and attracts investors. When
program
accounting keeps leaving the investors in the lurch, it will
impede the growth
of capital.
Program accounting is subject to frequent SEC probes. Boeing
comes under
SEC’s radar due to its vague and highly uncertain cost estimates
that are nearly

16. immaterial for the readers of its financial statements. (Bomey,
2016) When
Boeing keeps stirring up controversial investigations, it turns
into national
news, which puts the company’s credibility and reputation at
risk. A company
bears a heavy cost when a government branch fact-checks its
financial
disclosure because it indicates serious wrongdoing. That leads
to analysts and
rating agencies to rate the company down as well.
9
Why a