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
Preparation
Materials Needed:




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.
ACCOUNTING II

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.
II.
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
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.
ACCOUNTING II



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.
ACCOUNTING II
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 100368775, 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.
ACCOUNTING II
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
Preparation
Materials Needed:


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.
ACCOUNTING II
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.
ACCOUNTING II
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:
Financial Reporting Rubric
Performance
Element
Exemplary
Class Participation
in teacher
discussion of
importance
inaccurate
accounting records.
(10 pts.)
Student participated
andcontributed in
teacherdiscussion 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.)
Student actively
interviewedall three
areas for their need
offinancial reports of
businesses.(30 pts.)
Analytical and
informativereport of
accountinginformati
on needed
bydifferent people.
(30 pts.)
Student accurately
wrote ananalytical
and informativereport
of accounting
information needed
by lending agencies,
investment parties,
and management.
(30 pts.)
Find formulas for
ratios. (20pts.)
Student searched
textbooksand
matched formulas for
given ratios. (20 pts.)
Textbook Problems
on Ratiosand
determine if
favorable
orunfavorable
forcompany.
(10pts.)
Student accurately
calculatesratios and
formulas and writes
if result is favorable
or unfavorable for
company. (10pts.)
Activity11.2.1 – Financial Reporting Performance Task
Acceptable
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.)
Unacceptable
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.)
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING II
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.
ACCOUNTING II
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
Preparation
Materials Needed:


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.
ACCOUNTING II
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.
ACCOUNTING II
Assessment:
Cost-Volume Profit Relationships Rubric
Performance
Element
Exemplary
Acceptable
Unacceptable
Break-even point
Income
Statement
(40 pts.)
Student completed
the breakeven
point income
statement with
accuracy and details.
(40 pts.)
Student completed
the breakevenpoint
income statement
with only one error
inaccuracy or two
errors indetails.
(28 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.)
Spreadsheet
calculations
(40pts.)
Student completed
thespreadsheet
calculations
accurately and
labeled allitems.
(40 pts.)
Student completed
thespreadsheet
calculations
accurately with one
exception and
labeled all items
except for one.
(28 pts.)
Student's calculations
on thespreadsheet
were not accurate
in two or more
formulas and two or
more items were not
labeled. (0 pts.)
Answers to
hypothetical
questions
(20 pts.)
Student completed all
calculations
accurately and
clearly expressed
answers to
hypothetical
questions. (20 pts.)
Student completed
calculations
accurately except
for one and
expressed answers
on hypothetical
questions. (14 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.
ACCOUNTING II