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Breakeven point and Payback period

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Breakeven point and Payback period

  • This topic has 1 reply, 2 voices, and was last updated 9 months ago by John Moffat.
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  • September 11, 2021 at 11:05 am #635515
    Lehuyennhung
    • Topics: 1
    • Replies: 1
    • ☆

    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.

    September 12, 2021 at 8:33 am #635557
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    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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