Charts and Analysis
'Break-even' occurs when the total profit a business is equal to the costs they make.
For example: if a business makes £50 in a day and they have to spend £50 to get supplies, then the next day they make £60 then this is break-even.
First, you need to draw a basic graph with an X and Y axis. On the X axis, you need write the output from the business and on the Y axis you need to write the costs and revenue (income).
Next, plot a horizontal fixed cost line, the fixed costs don't change with output. Then, plot a variable cost line. This is the total cost line. This is because the fixed cost added to the variable cost is the total cost. Fixed+Variable=Total.
To calculate the variable cost you multiply variable cost per unit times the number of units.
Break-even is when the business can finally start making more profit than cost. So, even if they have to spend £50 they have more money as profit.
This sounds complicated, but it really isn't. Break-even is when a business starts to make profit.
When McDonald's started their business, there would have been a time at the start when they had to use their own expenses and resources, like a bank loan, to buy what they needed for their business. As soon as they started making extra money that covered more than their expenses, this was the break-even point.
- If a business does not reach this point, then they are spending their own money and not making any more, this risks the business becoming bankrupt.
- When a business reaches the break-even point they may need to think about expanding and choosing how to best spend their profit to make their business even better.
- When a business reaches the break-even point then they start making more money and making a profit.
- Making more money in a business may also mean hiring more staff to cover the increase in customers, or buying more goods to sell to the increasing amount of customers.