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:

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:

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

The question we are trying to answer is as follows:

We can answer this question using the following formula:

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 fixed 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);
costs.txt

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

Solution...

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