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Chapter 7 - Break Even Graphs

Introduction:
Cost = business expenses. (Can be per item sold or fixed expenses like wages)
Revenue = Money brought in. (Expenses are not counted)
Profit = Revenue Cost. (If the result is negative, the business is operating with a loss)
Break Even Point = The point at which revenue = cost. (There is no profit or loss)
In business, linear equations can be used to represent cost and revenue. These equations can be
graphed as shown below where A represents revenue and B represents cost:
Example -

We are going to take this a step further and begin developing equations to use for a particular
business that we can use to calculate a break even point (point of intersection).

Part #1 - Developing Formulas:


In this part, you will need to develop variables and a formula to represent each of the following
situations:
1. A cab driver charges $4.00 plus $0.30 per kilometer. Find an equation to represent the cost per
trip.
2. A tie store has monthly costs of $250.00. As well, the materials for each tie cost $12.00. Find an
equation to represent the monthly costs of this store.
3. The same tie store can sell ties for $32.00 each. Find an equation to represent the revenue that the
tie store can earn.
4. A math store sells math posters for $16.00 each. Find an equation to represent the revenue that
this math store can earn selling math posters.

Part #2 - Solving By Graphing:


In this part, we will be taking an existing business and creating a set of equations for this business
that we can graph to find the break even point.
This particular business sells pies. Their costs and revenue information is laid out for you below:
Costs:
$1000/month for rent
$125/month for electricity
$575/month for employees

Revenue:
They can sell their pies for $25.00 each.

$3.00/pie for supplies


1. Find the fixed cost for this business.
2. Find an equation to represent cost for this business using y to represent cost and x to represent the
number of pies sold.
3. Find an equation to represent the revenue that can be made on these pies using y for revenue and
x for the number of pies sold.
4. On a piece of graph paper, plot the equations using the y-axis as $ and the x-axis as number of
pies. Estimate the point of intersection.

Part #3 - Creating A Business:


In this part, you will be creating your own business. It can be any type of business you want (as long
as it is legal!). Your business must be different from all other groups (no copying!) You will need the
following information:
A name for your business and what you will be selling. You may sell one type of item
only.
A list of fixed monthly expenses for your business (minimum of 4). Give a brief
description for what each expense is for.
The variable cost for your business. Describe what supplies this money will be used to
purchase.
An equation representing the cost of operation for your business.
An equation representing the revenue your business will be able to earn.
Using your equations, graph them both on the same piece of graph paper and estimate the point of
intersection.

Part #4 - Using Algebra To Find The Break Even Point:


Using your equations from Part #3, you are going to solve the 2 equations algebraically using
elimination as well as substitution. Keep in mind that, not only should you get the same answer for
both calculations but it should be very close to your estimate from your graph in Part #3.

Part #5 - General Questions:


The following are some general understanding questions. For all questions, there is at least one and
often more than one answer that I am looking for. Put some thought into each question and write as
much as possible for each:
1. What could mean if you graphed the lines for Cost and Revenue and found they never crossed?
There is more than one possible meaning.
2. What could mean if the line representing cost were horizontal? What type of business might have
a cost line that was horizontal?
3. Could the line representing revenue ever be horizontal? What would it mean if it were?

Final Hand-In:
Your final hand-in for this project will consist of the following:

A title page with the title of your project, name and due date.
Part #1 - Formulas.
Part #2 - Graphing
Part #3 - Business Portfolio
Part #4 - Algebraic Solutions
Part #5 - General Questions

Be sure to check through each part carefully to ensure you have not missed anything.
Be sure to make it clear which answers go with which part.

Keep in mind that neatness definitely counts.

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