Lesson Plan 11.2 Cost-Volume-Profit Relationship Course Title Accounting II Lesson Title Cost-Volume-Profit Relationship Specific Objective Learn to use these classifications to analyze the relationship among costs, volume, and profit. Performance Objectives: Identify accounting concepts and practices related to preparing accounting information for management decisions; Compute the contribution margin; Prepare a contribution income statement; Calculate the contribution margin ratio; Compute the break-even point in units and dollars; Calculate the target profit and margin of safety; Define the accounting terms related to the lesson. TEKS: 130.167.c.: 5.A-O explain the nature of managerial cost accounting such as activities, costs, and cost drivers; conduct cost-volume-profit analysis; identify cost accounting systems such as job order costing, process costing, activity-based costing, and project costing; calculate the cost of goods sold; compute overhead rates; apply overhead to jobs; illustrate the nature of cost accounting decision making; discuss the nature of cost accounting budgets; explain the use of variance analysis for cost accounting; discuss the nature of cost allocation; develop standard variable costs for a product; calculate variances; conduct variance analysis; perform cost allocation functions; and prepare cost of production reports. 6.C determine relevant cost and revenue data for decision-making purposes. TAKS Correlations: R1, M2, M10 Materials Needed: Preparation Projection system Glencoe s Textbook, Chapter 24, and Demonstration Problems Century 21 s Textbook, Chapter 15. Accounting software and spreadsheet software. Sponge/Focus Activity: Lesson Plan 11.2 Cost-Volume-Profit Analysis Copyright Texas Education Agency, 2011. All rights reserved.
Ask your students what break even means. Ask them to give examples of when they broke even in their personal lives. Exploring the Real World of Business, in Glencoe s Textbook Lesson Content: See Glencoe s Textbook, Chapter 24, or Chapter 15. Here is an outline: I. The Contribution Margin A. Cost-Volume-Profit relationships B. The contribution margins 1. The contribution income statement 2. The unit contribution margin 3. The contribution margin ratio 4. The break even equation 5. Using the contribution margin ratio to calculate break even sales II. Analyzing profit and costs A. Profit planning 1. Setting a target profit 2. Margin of safety B. Applying CVP analysis 1. Changing fixed costs 2. Changing variable costs 3. Changing the selling price 4. Changing fixed costs, resulting in an increase in sales 5. Changing variable costs, resulting in an increase in sales 6. Changing selling price, resulting in a decrease in sales Teaching Strategies: Glencoe s Demonstration Problems Assessment: For problems you can use Peachtree Accounting from Glencoe, Glencoe Accounting Software, Century 21 Accounting Software, or a spreadsheet. From Glencoe s Textbook o Guided Practice 24-1 Preparing a Contribution Income Statement 24-2 Calculating Break-Even Point 24-3 Analyzing Changes in Costs and Profits o Independent Practice 24-4 Identifying CVP Relationships 24-5 Calculating Contribution, Margin Ratio, Break-Even Point, and Target Sales 24-6 Calculating Break-Even Point, Target sales, and Margin of Safety 24-7 Analyzing Changes in Variable Costs and Sales Lesson Plan 11.2 Cost-Volume-Profit Analysis Copyright Texas Education Agency, 2011. All rights reserved.
24-8 Analyzing Changes in Fixed Costs, Selling Price, and Sales 24-9 Calculating Break-Even Point and Margin of Safety 24-10 Applying CVP Analysis o Additional Activities: Using Key Terms, Understanding Accounting Concepts and Procedures, Case Study, Internet Connection, Conducting an Audit with Alex, and Workplace Skills o Open Notes and textbook Quiz: Study Guide for Chapter From Century 21 s Textbook o Guided Practice Work Together: Preparing an income statement with contribution margin On Your Own: Preparing an income statement with contribution margin Work Together: Calculating breakeven in sales dollars and unit sales and preparing a breakeven income statement On Your Own: Calculating breakeven in sales dollars and unit sales and preparing a breakeven income statement Work Together: Calculating sales to earn a planned net income, calculating the effect of volume changes on net income, and calculating the effect of changes in selling price On Your Own: Calculating sales to earn a planned net income, calculating the effect of volume changes on net income, and calculating the effect of changes in selling price o Independent Practice 15-1 Preparing an income statement reporting contribution margin 15-2 Calculating contribution margin and breakeven point 15-3 Calculating plans for net income 15-4 Calculating the effects on net income of changes in unit sales price, variable costs, fixed costs, and volume 15-5 Calculating sales mix 15-6 Calculating contribution margin and breakeven point; calculating sales dollars and unit sales for planned net income 15-7 Calculating the effects on net income of changes in unit sales price, variable costs, and fixed costs o Additional Activities: Applied Communication, and Cases for Critical Thinking o Open Notes and textbook Quiz:Study Guide for Chapters o Takin Care of Business Educational Handbook, Lesson 3: Breakeven Analysis Proving the Price is Right This lesson is also assessed through the Unit Test at the end of the Unit. Additional Resources: Lesson Plan 11.2 Cost-Volume-Profit Analysis Copyright Texas Education Agency, 2011. All rights reserved.
Textbooks: Guerrieri, Donald J., F. Barry Haber, William B. Hoyt, and Robert E. Turner, Glencoe Accounting Real-World Applications & Connections, Advanced Course, Fourth Edition, Glencoe McGraw-Hill: New York, New York. Ross, Kenton E., CPA, Mark W. Lehman, CPA, Claudia Bienias Gilbertson, CPA, Robert D. Hanson, Century 21 Accounting Advanced, Anniversary Edition, Thomson South-Western: Mason, OH, 2003. Takin Care of Business, Education Handbook, American Institute of Certified Public Accountants, 1211 Avenue of the Americas, New York, NY 10036-8775, www.aicpa.org. Multimedia: Century 21 s Teacher Resource CD Websites: http://accounting.swpco.com Lesson Plan 11.2 Cost-Volume-Profit Analysis Copyright Texas Education Agency, 2011. All rights reserved.
Activity 11.2.1 Financial Reporting Course Title Accounting II Lesson Title Accounting for Business Decisions Specific Objective Students interview financial lending institutions, investors in stock of corporations, and managers of businesses all people who are interested in knowing financial status of a business. Students write reports of this research, understanding how important accurate accounting records are to many different people. TEKS: 130.167.c.: 5.A.,-O. explain the nature of managerial cost accounting such as activities, costs, and cost drivers; conduct cost-volume-profit analysis; identify cost accounting systems such as job order costing, process costing, activity-based costing, and project costing; calculate the cost of goods sold; compute overhead rates; apply overhead to jobs; illustrate the nature of cost accounting decision making; discuss the nature of cost accounting budgets; explain the use of variance analysis for cost accounting; discuss the nature of cost allocation; develop standard variable costs for a product; calculate variances; conduct variance analysis; perform cost allocation functions; and prepare cost of production reports. 6.A.-C. process preliminary budget detail; prepare budget reports; and determine relevant cost and revenue data for decision-making purposes. TAKS: R1, W4, W5, W6 Materials Needed: Preparation Computer with presentation software and Internet access. Computer with display system and presentation software for student s presentations. Teaching Strategies: Discuss with students the importance of keeping accurate financial records, then lead into a discussion of who is interested in financial records and of a business. Activity Outline: Activity11.2.1 Financial Reporting Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
1. Students research the types of financial reports that are available on the Internet. Students call managers of companies and interview them to see how they analyze financial statements to make wise business decisions in their company. Students call banks and other financial institutions to inquire which financial statements and reports are needed when considering loans for applicants. Interview the lending agency to learn questions they ask and procedures they take in consideration of a loan application. Students call a stockbroker and individuals who are interested in investments of stock in companies. Interview these people to learn what financial statements help them make a good decision about buying stock. 2. Students write an analytical and informative report over their research and detail particular financial reports that are important to all interested people. The types of financial analysis used by these people shouldbe included in student report. 3. Students research the following ratios then complete a spreadsheet that includes the purpose of the ratio and its formula. Students can be divided in teams, pairs, or remain individual to research ratios. Below are ratios and financial analyses with which students should be familiar with: Vertical Analysis of Income Statement and Balance Sheet Horizontal Analysis of Income Statement and Balance Sheet Rate Earned on Average Total Assets Rate Earned on Average Stockholder s Equity Rate Earned on Net Sales Earnings Per Share Price-Earnings Ratio Accounts Receivable Turnover Ratio Merchandise Inventory Turnover Ratio Working Capital Current Ratio Acid-Test Ratio Debt Ratio Equity Ratio Equity Per Share 4. Students are assigned a company. They should locate its annual report, then Activity11.2.1 Financial Reporting Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
calculate the financial analysis ratios. 5. Students interpret and analyze whether the calculations are favorable or unfavorable for the business and report to the class. Assessment: Performance Element Class Participation in teacher discussion of importance inaccurate accounting records. (10 pts.) Three interview areas in lending agencies, investing parties, and management for their need of financial reports. (30 pts.) Analytical and informativereport of accountinginformati on needed bydifferent people. (30 pts.) Find formulas for ratios. (20pts.) Textbook Problems on Ratiosand determine if favorable orunfavorable forcompany. (10pts.) Financial Reporting Rubric Exemplary Acceptable Unacceptable Student participated andcontributed in teacherdiscussion of importance inaccurate accounting records.(10 pts.) Student actively interviewedall three areas for their need offinancial reports of businesses.(30 pts.) Student accurately wrote ananalytical and informativereport of accounting information needed by lending agencies, investment parties, and management. (30 pts.) Student searched textbooksand matched formulas for given ratios. (20 pts.) Student accurately calculatesratios and formulas and writes if result is favorable or unfavorable for company. (10pts.) Student participated andcontributed in teacherdiscussion of importance inaccurate accounting recordsexcept for a five-minuteperiod. (7 pts.) Student interviewed all threeareas for their need offinancial reports of businessesbut didn t get adequatenumber of people contacted. (23 pts.) Student wrote an analyticaland informative report of accountinginformatio nneeded by lending agencies, Investment parties, and management but it included five errors. (20 pts.) Student searched textbook andmatched formulas for givenratios but onethird wereincorrect. (15 pts.) Student calculates rations andformulas but omits writing whether favorable or unfavorable for business. (5pts.) Student did not participate nor contribute to teacher discussion of importance in accurate accounting records. (0 pts.) Student did not interview thethree areas to learn of their need for financial reports in business. (0 pts.) Student did not write ananalytical and informativereport of accounting information needed by lendingagencies, investment parties, and management. (0 pts.) Student did not find ratios andformulas. (0 pts.) Student did not completetextbook problems on ratios. (0 pts.) Activity11.2.1 Financial Reporting Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
Additional Resources: Websites: www.aicpa.org www.tscpa.org www.bls.gov/oco Use to obtain the annual report: Sears - http://www.sears.com/ Coca Cola - http://www.cocacola.com/ Social Security Administration - http://www.ssa.gov/ Other: Corporations must submit annual report to SEC. SEC maintains an online database of these reports, called EDGAR. Search the EDGAR database for these financial statements. Activity11.2.1 Financial Reporting Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
Activity 11.2.2 Cost-Volume Profit Relationships Course Title Accounting II Lesson Title Accounting for Business Decisions Specific Objective Students discuss the interrelationships among contribution margin rate, sales dollar breakeven point and unit sales breakeven point, then use what-if analysis techniques on various scenarios. TEKS: 130.167.c.: 5.A.,-O. explain the nature of managerial cost accounting such as activities, costs, and cost drivers; conduct cost-volume-profit analysis; identify cost accounting systems such as job order costing, process costing, activity-based costing, and project costing; calculate the cost of goods sold; compute overhead rates; apply overhead to jobs; illustrate the nature of cost accounting decision making; discuss the nature of cost accounting budgets; explain the use of variance analysis for cost accounting; discuss the nature of cost allocation; develop standard variable costs for a product; calculate variances; conduct variance analysis; perform cost allocation functions; and prepare cost of production reports. 6.A.-C. process preliminary budget detail; prepare budget reports; and determine relevant cost and revenue data for decision-making purposes. TAKS: R1, W4, W5, W6 Materials Needed: Preparation Computer with presentation software and Internet access. Computer with display system and presentation software for student s presentations. Activity Outline: 1. Using an income statement on the overhead, the students classify variable, fixed and mixed expenses. 2. In a team of three or four students, the teams use the displayed income statement tocalculate the following: contribution margin rate sales dollar break even point unit sales break even point 3. Verify the break even point by preparing a break even point income Activity 11.2.2 Cost-Volume Profit Relationships Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
statement. (This could be done on the projection system to share with the class.) 4. Compare your completed project with the class. (You could use numbered heads. Have each student on the team number off and call off the name of a team and a number from that team to present their findings to the class.) 5. Using a spreadsheet, each student should use the same income statement to calculate the contribution margin rate, sales dollar break even point and unit sales break even point. 6. Answer the following hypothetical questions: What is the impact on my profit if costs increase 5%? What will happen if I raise my prices by 5%, but sales volume decreases by 10%? Activity 11.2.2 Cost-Volume Profit Relationships Performance Task Copyright Texas Education Agency, 2011. All rights reserved.
Assessment: Performance Element Break-even point Income Statement (40 pts.) Spreadsheet calculations (40pts.) Answers to hypothetical questions (20 pts.) Cost-Volume Profit Relationships Rubric Exemplary Acceptable Unacceptable Student completed the breakeven point income statement with accuracy and details. (40 pts.) Student completed thespreadsheet calculations accurately and labeled allitems. (40 pts.) Student completed all calculations accurately and clearly expressed answers to hypothetical questions. (20 pts.) Student completed the breakevenpoint income statement with only one error inaccuracy or two errors indetails. (28 pts.) Student completed thespreadsheet calculations accurately with one exception and labeled all items except for one. (28 pts.) Student completed calculations accurately except for one and expressed answers on hypothetical questions. (14 pts.) Student did not complete thebreakeven point incomestatement with accuracy ordetails. Therewere two ormore errors in accuracy andthree or more errors in detail. (0 pts.) Student's calculations on thespreadsheet were not accurate in two or more formulas and two or more items were not labeled. (0 pts.) Student did not accuratelycalculate answers onhypothetical questions in two or more instances and did not clearly express answers. (0 pts.) Activity 11.2.2 Cost-Volume Profit Relationships Performance Task Copyright Texas Education Agency, 2011. All rights reserved.