Calculating the break-even point
Tracking and understanding how cost per unit varies by month is critical, as the COGS influence the gross profit. At a certain point, if we do not make enough sales in the month to cover our costs, we will enter a loss situation.
How do we know we have produced enough units to sell to cover our costs? We do this by using a concept called the break-even point. The formula is as follows:
\(Breakeven\,Point(Units) = \frac{Fixed\,Costs}{Price\,Per\,Unit-Variable\,Cost\,Per\,Unit}\)
- In the last exercise, we calculated a unit cost of 16.5 USD for January and 15.2 USD for February. Keep this in mind when calculating the break-even point.
Predefined variables have been printed to the shell.
This is a part of the course
“Financial Forecasting in Python”
Exercise instructions
- Print the variables in the shell to help you construct the formula for the break-even point.
- Forecast the gross profit for January and February.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Calculate the break-even point (in units) for Wizit
break_even = ____/(____ - ____)
# Print the break even point in units
print("The break even point is {} units.".format(____))
# Forecast the gross profit for January and February
gross_profit_jan = (sales_price*____) - cogs_jan
gross_profit_feb = (____*____) - ____
# Print the gross profit for January and February
print("The gross profit for January and February are {} and {} USD respectively.".format(____, ____))This exercise is part of the course
Financial Forecasting in Python
Step into the role of CFO and learn how to advise a board of directors on key metrics while building a financial forecast.
In this chapter, we will learn the basics of financial statements, with a specific focus on the income statement, which provides details on our sales, costs, and profits. We will learn how to calculate profitability metrics and finish off what we have learned by building our profit forecast for Tesla!
Exercise 1: Introduction to financial statementsExercise 2: Calculating gross profitExercise 3: Calculating net profitExercise 4: Elements within net profit & gross profitExercise 5: Calculating sales & Cost of Goods Sold (COGS)Exercise 6: Calculating salesExercise 7: Forecasting sales with a discountExercise 8: Calculating COGSExercise 9: Calculating the break-even pointExercise 10: Working with raw forecast datasetsExercise 11: Tesla income statementExercise 12: Forecasting profit for TeslaWhat is DataCamp?
Learn the data skills you need online at your own pace—from non-coding essentials to data science and machine learning.