Differentiate between accounting breakeven point and economic-01996
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vu mgt501 Human Resource Management.
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vu mgt501 Mid Term Solved Past Paper No. 1.
Question 1: Differentiate between accounting breakeven point and economic break even point.
A project that just breaks even in accounting income terms will have a negative NPV.Accounting break-even analysis does not consider the cost of capital invested in theproject.
There is only one Accounting break-even point.
The economic break-even point is the level of sales from a project needed to generate azero NPV .
The sales level that produces an NPV of zero is always higher than the sales level for theaccounting break-even point.
There are two BE points for economists.& the maximum profit is the widest area betweenthat points.
Break-even Sales = [ (Fixed Costs Including Depreciation )(1-T) + Annual cost of capital - Depreciation] / [ (1-T) {1 - (Var. Cost / Sales)}]
Answer:
Accounting Break-Even Analysis
In simple terms a company breakeven when TR=TC. It is a no profit no loss situation.The sales break-even point is estimated to be the fixed costs including depreciationdivided by the percentage of sales contribution margin, or the fixed costs includingdepreciation divided by one minus the variable cost to sales ratio:
Break-even Sales = Fixed Costs Including Depreciation / [1 - (Var. Cost / Sales)]A project that just breaks even in accounting income terms will have a negative NPV.Accounting break-even analysis does not consider the cost of capital invested in theproject.
There is only one Accounting break-even point.
The economic break-even point is the level of sales from a project needed to generate azero NPV .
The sales level that produces an NPV of zero is always higher than the sales level for theaccounting break-even point.
There are two BE points for economists.& the maximum profit is the widest area betweenthat points.
Break-even Sales = [ (Fixed Costs Including Depreciation )(1-T) + Annual cost of capital - Depreciation] / [ (1-T) {1 - (Var. Cost / Sales)}]
