BREAK-EVEN ANALYSIS OF MCDONALDS
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BREAK-EVEN ANALYSIS OF MCDONALDS INTRODUCTION Break-even analysis is the comparison of a firm's revenue and it fixed and variable costs, to identify the minimum sales level needed to achieve break even point. Break-even point is the level of output at which total revenue equals total cost. A business to achieve break-even is so important. A business usually fail down because put all the money in, and can't get the money back in the short term of time, which they can cost the cost. Break-even is an important objective of a business to survive in the short term. To break-even, that means the revenue needs to cover all the cost of the business, which is variable cost and fixed cost. The revenue is means the money which make from to sell the products. Variable cost is means the cost that directly go to make each product. For example raw material, and staff wages. It call variable cost is because they are depend on how many product are produce. Fixed cost is the cost of running the business, it doesn't affect by how many product are produce. Fixed cost include the rent of the shop, business taxes, fuel bill, insurance, staff salary etc.
Because the entire objective such as expand the company, improves the quality etc are need money to achieve. First step to make a profit is covering the cost of business to survive. That needs to meet the break-even point. Because the company can't get the money back to cover the cost in the short term, it will be fail. Most of the reason of a company fail are they pay all the money in the business, but can't make profit in short term to cover the cost. So we need to have break even analysis that is a financial plan for a company. After calculate break-even, we may know how many product we need to sell to cover the overall cost of a company. On above, I calculate we need to sell at leases 909091 product to cost the cost. Sell less than that, we will make a loss. If sell more, we will make a profit. Lower 909091, which is a loss-making zone. And more 909091 is the profit-making zone of McDonald. So, McDonald want to growth in UK, it needs to make a profit, and use the money to expand the company. And the break-even analysis shows a plan of how many product we need to sell.
company like McDonald can increase the output to benefit from economic scale, because they can * arrange a big discount from the supplier of food, * able to raise finance far cheaper then small company, * Mass production techniques using specialist machinery, such as the produce of the toy in "happy meal" can use a big scale machine and more efficient. Also the cost of research and invest for a new type of food can divide to big amount of products. That make the cost of food won't be too expensive. But there also got the disadvantage of cutting the cost. For example: cut the cost on buy cheaper raw material may cause to decrease the quality of food. But in the objective of McDonald shown the good way of lower the cost of raw material also won't decrease the quality, that is make a relationship with limit suppliers. The other example of disadvantage of lower the cost is pay less to the staff. This can reduce the fixed cost directly, but it may let to lose of the staff. Because the wages of McDonald's staff nearly touch the lower wages in UK. So I think if need to lower the cost, it should be work on increase the output to benefit from economic scale.
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