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Hi,
My question is: Is break-even point based on accounting profit? And does it just involve in one accounting period or not?
Given the selling price is $10, the variable cost is $6, the fixed cost is $200k including depreciation expense of $50k (the non-current asset’s cost is $500k, with useful life of 10 years, depreciated on straight-line basis).
Then the break even point is 50,000 unit ($200k/($10-$6)) or 162,500 unit (($150k+$500)/($10-$6))?
If we have a forecast sales for several years, can we use breakeven point to estimate the payback period?
Sorry if my question seems dumb. Thank you for your answer.
The breakeven would be 50,000 units, but this is Paper PM and not Paper FM.
That definition of breakeven point has nothing to do with the payback period. Breakeven is the number of units that need to be sold, whereas the payback period is the number of years to recoup the original investment.
Do watch my free lectures – they are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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