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Is it correct that any costs that does not vary with the production levels are regarded as fixed cost. That’s why depreciation expense is a fixed cost.
Yes. The definition of a fixed cost (from Paper MA) is a cost that does not vary with the level of production.
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Should we use profit before depreciation OR profit after depreciation for the ROI in chap 17?
Is it correct that profit before depreciation is before deducting the depreciation which is Gross Profit whereas profit after depreciation is after deducting depreciation cost which is PBIT?
You should use the profit after deprecation.
Gross profit is the sales less the cost of sales. Net profit is the gross profit less the administrative and selling and distribution expenses. This is Paper FA (was F3) knowledge and is not really particularly relevant to Paper PM 🙂
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Could you please tell me where do we normally charge the depreciation expense in SOPL?
Is it also true that:
Profit before depreciarion = Gross Profit
Profit after depreciation = PBITSo we we use PBIT for ROI formula.
Please answer both of my questions. Thank you 🙂
It depends what is being depreciated. Depreciation of production machines is charged as part of the cost of sales. Depreciation on office equipment is charged to administrative expenses.
This is Paper FA and not relevant for Paper PM.
I have answered your second and third questions in my previous post.
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