Advanced Search

Break Even Analysis and Budgeting - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with Break Even Analysis and Budgeting and are relevant to the following specifications:

• AQA: Module 1, 10.4 and 10.6
• Edexcel: Unit 3, Section 2 and 3
• OCR: Modules 2872 and 2873

Aim:

The purpose of these lessons is to encourage students to build confidence in the use of break even charts and to incorporate within the analysis price elasticity of demand and some basic ICT skills using Excel spreadsheets.

The information provided in the spreadsheet is of a fictional wholesale company selling plants to garden centres. The figures are all rounded for ease of use and manipulation.

Sheet 1a provides information on the budgeted sales for 2004. Variable costs are set at 40% of total revenue and the initial price is set at £2 per unit. Fixed costs are set at £9,000.

The task expects students to produce some simple break even charts. To do so they will have to calculate the link between total revenue and sales, assuming the price of £2 per unit. By putting the variable and fixed costs into the sheet they will be able to show the break even output level. Once this has been done, the rest of the task is a repeat of the basic techniques used to get to this stage but using different price levels, thus obtaining different break even sales figures.

The task also asks students to offer advice to the company and to incorporate the likely impact of price elasticity of demand in the analysis. The suggestion is that price elasticity of demand is relatively elastic and so reducing the price would generate an increase in sales by a greater proportion than the fall in price whereas the increase in price would lower sales by a greater proportion. This should enable students to be able to see the impact on the original table in terms of when sales are going to occur, thus altering the budget outcomes.

Learning Objectives:

At the end of these lessons, students should be able to demonstrate an understanding of the following:

• The meaning of the term break even
• The use of break even charts in business planning
• The purpose and nature of budgets
• The impact of the price elasticity of demand on business planning
• The use of Excel spreadsheets in manipulating financial information
• The production of appropriate charts using Excel

Resources:

• PowerPoint Presentation - Costs and Budgeting [234 KB]
• Mind Map - Costs and Budgeting
• Activity - Break Even Analysis and Budgeting
• Access to PCs with Excel

Lesson Structure:

Lesson 1

1. Outline the aim of the lessons and the format. (5 minutes)
2. Introduce the concepts of costs, break even and budgets using the Presentation. Discuss key points and terms and engage students in question and answer session throughout. (30 minutes)
3. Set students on the task - get them to familiarise themselves, if necessary, with Excel and the nature of the task. (20 minutes)
4. Summarise the main points of the lesson and outline the task for the next lesson. (5 minutes)

Lesson 2

1. Review outcomes of last lesson and outline the purpose of this lesson. (5 minutes)
2. Set students on the task. (35 minutes)
3. Bring students back together and discuss outcomes following work on the Activity. (15 minutes)
4. Review learning outcomes. (5 minutes)