How to treat Advertisement in Break even analysis?

Answer 1

As an expense. You might be tempted to capitalize it, but that would not be the appropriate thing to do. Back in the day, MCI capitalized about $80 million (I could be very wrong on the scale, just assume it's a lot of money) of wire transfer costs, that is, fees they were charged for using other carriers' phone lines, so as to fluff up their books. Needless to say, they got in big trouble for that. I know you're not talking for auditing purposes or anything, so if you want to have an accurate picture of your business and how much money you will need to bring in in order to offset the money you are paying out (advertisement and other expenses), treat advertising as an expense.