The major differences between accounting breakeven point and financial breakeven point are given below −
Accounting breakeven point
It is the number of units sold to cover costs.
It is an easy method.
Cost per unit, fixed cost and variables cost are required to calculate the breakeven point.
Accounting breakeven point = (TFC/PPU)-VC (Where TFC= Total fixed cost, PPU = price per unit, VC = variable cost
Zero operating margin is calculated.
Financial breakeven point −
It estimates earning level at which Earnings Per Share (EPS) equals to Zero.
It is relatively a complicated method.
For calculation, Earnings Before Income and Tax (EBIT) is considered as earning.
Financial breakeven point = (PD/1-TR)+ IE (Where, PD = preferred dividends, TR= Tax rate, IE = Interest Expenses)
Zero net income is calculated.
Different measurements are required to calculate.
What are steps in calculating financial breakeven point