Break Even Point

In Business or Economics the Break Even Point (BEP) is the point at which the total of fixed and variable costs of a business becomes equal to its total revenue. At this point, a business neither earns any profit nor suffers any loss. The following graph explains all the concepts used to find out the break even point:
break-even-point

Scenario

Let’s consider an online Bakery that specialises in selling Birthday Cakes online. The owner of the bakery has estimated all the costs involved and grouped them into two categories:

  • Fixed Costs: These costs will remain the same and do not vary depending on the number of cakes being sold. They include:
    • The rent,
    • Purchasing Cooking Equipment,
    • Utility Bills,
    • Website (Setup and maintenance/hosting).
  • Variable Costs: These costs will vary depending on the number of cakes being sold. They include:
    • Ingredients,
    • Packaging,
    • Delivery Fees.

The total costs of this online bakery consist of the fixed costs plus the variable costs and can be calculated using the following formula:

Total Costs = fixed costs + (variable costs x number of cakes sold)

The revenues of this online bakery consist of the money received when selling cakes. They can be calculated using the following formula:

Revenues = average cake price x number of cakes sold

The question we are trying to answer is as follows:

What is the break even point of this online bakery? In other words, how many cakes will need to be sold to cover all the costs and start making a profit?

We can answer this question using the following formula:

Number of Cakes to break even = Fixed Costs / (Average Price – Variable Costs)

Coding Challenge

We have listed all the costs of our online bakery, both fixed and variable into a text file.

The average price per cake is £16.00.

Use a Python program to extract the relevant information from the text file in order to:

  • Calculate the sum of all total costs.
  • Calculate the sum of all variable costs.
  • Find out the break even point for this business: how many cakes will need to be sold to cover all the costs and start making a profit?

The text file we will use contains one line per cost as follows:

Description;Type of cost (fixed cost or variable cost);Value (in pounds);
TextFilecosts.txt

To complete this challenge you will need to read more about how to read through a CSV file.

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Posted in Computer Science, Python - Intermediate, Python Challenges Tagged with: ,

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