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.
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