Title: Basic Cost Volume Profit Analysis
Course: BAC300: Management Accounting I (PEBL) > Section: LESSON FOUR: Basic Cost Volume Profit Analysis

1.1  Introduction

In this first lesson, we lay the foundation for the entire course by defining the concept entrepreneurship and other related terms. Throughout our teaching experiences, we have found that an understanding of the basic principles behind the subject and their applications increases the students’ motivation for the subject. We therefore introduce you to the theories upon which entrepreneurship study is based and encourage you to engage in in-depth discussions of these concepts and theories. Since the term entrepreneurship is closely associated with small businesses, we introduce the concept of small business too. The purpose of this lesson is to enable you understand fundamental concepts and theories of entrepreneurship.

4.1 Introduction

Lesson-level overview | Lesson/week/section | 4.
Lesson name: | Basic Cost Volume Profit Analysis
Aim of the lesson: | This lesson introduces you to basic cost, volume and profit analysis and helps you determine break-even point, calculate margin of safety and profitability, multi-product analysis and to construct a break-even chart.
This lesson covers:
1. Cost volume profit analysis
2. Break-even point
3. Margin of safety and profitability
4. Multi-product cost-volume-profit analysis
5. Cost volume profit graph and profit volume chart
Intended learning outcomes:
At the end of this lesson, you will be able to:

1. Examine cost volume profit analysis.
2. Determine the break-even point.
3. Calculate margin of safety and profitability.
4. Evaluate multi-product cost-volume-profit analysis.
5. Construct a break-even chart to determine the break-even point.
Overview of student activity:
1.Pre-lesson activity – Watching a video on assumptions of cost volume profit analysis

2. Engaging in e-tivities 4.1, 4.2, 4.3 that involves  reading linked resources and watching videos on components of the cost volume profit analysis (4.1), determining break-even points

3. Calculating margin of safety and profitability (4.3)

4. Interactions on the discussion forums

Constructive alignment of lesson level outcomes with module level outcomes, learning activities and assessment

(Pressing <Tab> at the end of the table will provide additional rows in the table, if required.)
Intended lesson learning outcomes: | No of module-level outcome | Activity where students engage with this outcome | Where and how is this outcome assessed?
At the end of this lesson, you will be able to:
1. Explain cost volume profit analysis | 3 | 4.1 | 4.1 (a) and (b)- Essay questions
1. Determine the break-even point | 3 | 4.2 | 4.2 (a), (b) and (c) - Calculation questions
1. Calculate margin of safety | 3 | 4.3 | 4.3 (a) and (b) - Calculation questions
1. Evaluate multi-product cost volume profit analysis | 3 | 4.4 | 4.4 (a) and (b) - Calculation questions
1. Construct a break-even chart to determine the break-even point. | 3 | 4.5 | 4.5 (a) – Construction of a chart

Detailed explanation of ALL student and teacher engagement with the Lesson:

Detailed explanation of ALL student and teacher engagement with the Lesson:

(This should be presented in the order that the activities take place.  So, if students do work online before coming to the lecture, that should be shown ahead of what happens in class.

If there is more than one opportunity for face-to-face contact, or more than one online task, there should be a separate section for each instance, and they should be presented in the template in the same order that students encounter them.)

Content – such as lecture material – can EITHER be shown here OR added as clearly identifiable addenda to the document.  If you plan to use addenda, you should ensure that these are cross-referenced in this section.)
Module-level outcomes addressed:
Lesson four addresses module learning outcome 3, management accounting techniques in business decisions.
Purpose of the lesson/week/section:
This lesson provides you with an overview of cost volume profit analysis to enable you determine break-even points and margin of safety and profitability in business.
Over to you: (a description of the process of the section)
In this lesson, you will learn about cost volume profit analysis, margin of safety and determination of break-even points. You will begin with a pre-topic activity which will involve watching a video on cost volume profit analysis, then listing the assumptions and sharing your answer in a discussion forum 4.1.
Pre-lesson activity: | Number of hours | 1
Watch a video on cost volume profit analysis, then in groups of three, discuss and list the assumptions of cost volume profit analysis. Share your answer in discussion forum 4.1.
Face to face time: (if applicable) | Number of hours | 1
1. Explain the link between the previous lesson and the current one
2. Give feedback on pre-topic activity
3. Introduce cost volume profit analysis and how to determine break-even points
Online activity: | Number of hours | 1
What should students do?
E-tivity 4.1

watch video1 and  video2 and then;

a) Explain cost volume profit analysis.

b) Evaluate components of the cost volume profit analysis.
Where do they do it? | In discussion forum 4.1
By when should they do it? | A day before the next lesson.
E-moderator/tutor role
1. Ensure that learners are focused on the contents and context of discussion.
2. Stimulate further learning and generation of new ideas.
3. Provide feedback on e-tivity 4.1 tasks.
4. Close the e-tivity
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Essay questions
How does this section link to other sections of the module?
This section lays the foundation for key concepts of cost volume profit analysis and forms the basis for subsequent lessons.

E-tivity 4.2

= Total number of hours | 4 |
Online activity: | Number of hours | 1
What should students do?
E-tivity 4.2

Cost volume profit analysis is important in determining contribution margin, profit/volume ratio and break-even point. Read  material, and then;

(a) Using the data below determine; Contribution margin, Profit/Volume ratio and Break-even-points units and revenue for ABC Limited is producing a single product:

       Selling price               sh. 50

       Variable cost per units sh. 30

       Fixed cost of production sh. 50,000

(b) Rift Limited is manufacturing a single product with the following details:

Material cost                sh. 40

Labour cost                  sh. 60

Direct overheads           sh. 30

Factory overheads         sh. 20

Selling price                 sh. 300

Fixed cost of production sh. 300,000

You are required to determine:

(i) Total variable cost per unit

(ii) Contribution margin

(iii) Profit/Volume ratio

(iv) Break-even-points units and revenue

(c) ABC is producing a single product with the following information:

Selling price per unit         sh. 500

Material cost per unit         sh. 100

Labour cost per unit          sh.100

Direct expenses                sh. 50

Factor Overheads              sh. 50

Fixed Cost of production sh. 50,000

You are required to calculate:

(i)     Contribution margin.

(ii) P/V ratio.

(iii) Break-even-points volume and revenue.

(iv)  Volume and Revenues to achieve desired profits of sh.30, 000.

(d) Once you have posted your answers on the discussion forum, switch the answers with at least two of your colleagues in the tutorial group and compare the answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 4.2
By when should they do it? | Within two days from when the activity is given.
E-moderator/tutor role
1. Ensure that learners are focused on the contents and context of discussion.
2. Stimulate further learning and generation of new ideas.
3. Provide feedback on e-tivity 4. 2 tasks.
4. Close the e-tivity
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Computational questions
How does this section link to other sections of the module?
This lesson sets the stage for the next lesson by giving a holistic overview of decision making process based on different levels of profitability. It will act as a reference point for the subsequent lessons.

E-tivity 4.3

Online activity: | Number of hours | 1
What should students do?
E-tivity 4.3

Margin of safety and margin of safety ratio are important in cost volume profit analysis, read the materials on  link1 and link2 ,and then calculate:

(a) Power Limited is producing a single product with the following information:

       Selling price  sh. 30

       Variable cost per unit sh. 20

       Fixed cost of production sh. 10,000

Desired profit                                  sh. 20,000

       You are required to calculate:

(i) Contribution margin

(ii) Profit/Volume ratio

(iii) Break-even-points volume and revenue

(iii) Margin of safety volume and revenue

(iv) Margin of safety ratio

(b) Calculate the margin of safety and margin of safety ratio when fixed cost, variable cost and sales are shillings: 300,000; 600,000 and 1,000,000 respectively.

(c) Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial group have posted and verify your answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 4.3
By when should they do it? | Two days before the next lesson.
E-moderator/tutor role
1. Ensure that learners are focused on the contents and context of discussion.
2. Stimulate further learning and generation of new ideas.
3. Provide feedback on e-tivity 4.3 tasks.
4. Close the e-tivity
How are the learning outcomes in this Lesson assessed? | Number of hours | 1
Computational questions
How does this section link to other sections of the module?
This is a continuation of etivity 4.3 and sets the stage for the next lesson.

E-tivity 4.4

Online activity: | Number of hours | 1
What should students do?
E-tivity 4.4

You have performed cost volume profit analysis for a single product in e-tivity 4.2 and e-tivity 4.3. For multi-product  cost volume profit analysis watch video and read material  and then evaluate:

(a) Evaluate the break-even sales for the following data for a company producing three products with brand names X, Y and Z by calculating weighted Profit/Volume ratio and Break-even point

Products | Sales (sh.) | Variable Costs (sh.
X | 500,000 | 200,000
Y | 300,000 | 150,000
Z | 200,000 | 100,000
Total | 1,000,000 | 450,000

Total fixed Cost Ksh. 250,000

(b) Evaluate the break-even sales for a firm producing four products with brand names A, B, C and D. by calculating weighted Profit/Volume ratio and break-even point

Products | Sales (sh.) | Variable Costs (sh.)
A | 100,000 | 60,000
B | 80,000 | 40,000
C | 60,000 | 20,000
D | 50,000 | 10,000

Total fixed Cost sh. 40,000

 (c)  Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial group have posted and verify your answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 4.4
By when should they do it? | Before the next lesson.
E-moderator/tutor role
1. Ensure that learners are focused on the contents and context of discussion.
2. Stimulate further learning and generation of new ideas.
3. Provide feedback on e-tivity 4.4 tasks.
4. Close the e-tivity.
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Quantitative questions
How does this section link to other sections of the module?
This is a continuation of cost volume profit analysis on multi-products and forms the basis for further interactions.

E-tivity 4.5

Online activity: | Number of hours | 1
What should students do?
E-tivity 4.5

Graphical techniques are powerful tools for cost volume profit analysis. Read materials in link1 and link2 and watch  video  and then construct:

(a) Construct a break-even chart to determine the break-even point to indicate; loss area, profit area and margin of safety.

1. Selling Price per units sh.100
2. Variable cost per unit sh.50.
3. Fixed cost sh.6,000,000
4. The actual sales during the period were 180,000 units.

(b) Use contribution margin technique to verify your results.

(c) Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial group have posted and verify your answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 4.5
By when should they do it? | Before the next lesson.
E-moderator/tutor role
1. Ensure that learners are focused on the contents and context of discussion.
2. Stimulate further learning and generation of new ideas.
3. Provide feedback on e-tivity 4.5 tasks.
4. Close the e-tivity.
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Graphical and quantitative questions
How does this section link to other sections of the module?
It lays foundation for lesson five.

Some important questions

Which learning resources/ references will scaffold the students’ learning?
1. MitchelL, F., Moyne, C. Patty, G. & Dixon, C. (2019) Principles of accounting, Vol 2:managerial accounting, OpenStax , Houston, Texas,
2. Jonick, C. (2019) Principles of Managerial Accounting. Business Administration, Management, and Economics Open Textbooks.
3. Kurt, H., Sierra, C. Joe, & H. (2012) Managerial accounting, Saylor Foundation.
4. College, N., & Mathein, E. (2021). Cost-Volume-Profit Analysis. Nicoletcollege.pressbooks.pub. Retrieved 9 June 2021.
5. Cost-Volume-Profit Analysis Summary | Managerial Accounting. Courses.lumenlearning.com. (2021). Retrieved 9 June 2021
6. Break Even Point for Multiple Products | Managerial Accounting. Courses.lumenlearning.com. (2021). Retrieved 9 June 2021.
7. Youtube https://www.youtube.com/watch?v =2E3ZvW8CGHM (2017) Retrieved 15 May 2021
8. Youtube https://www.youtube.com/watch?v=2D13achr_K0. (2020) Retrieved 26 May 2021
9. Youtube https://www.youtube.com/watch?v=vAE9aYwHtGs. (2020) Retrieved 2 June 2021
10. Youtube  https://www.youtube.com/watch?v=xNF5W0ku8OA (2017) Retrieved 2 June 2021
How are students enabled to access the resources? | Learning Management System (LMS). OER Africa website
Where in this lesson are students expected to work collaboratively? | Discussion forum 4.2,4.3,4.4 and 4.3
How has an inclusive approach been incorporated in this lesson?
1. Use of multimedia resources in the module and differentiated learning activities.
2. Use university computer labs, all resources are downloadable for offline use and discounted data bundles are available to students.
3. Use of accessibility button for learners with special needs on the LMS.
How will feedback on lesson be obtained from students? | Through the posts in the discussion forum 4.2,4.3,4.4 and 4.3
How will student feedback be used to improve lesson? | By incorporating suggestions in the course for the current and subsequent cohorts.
At which point(s) will students receive formative feedback on the work they have done in the lesson? | Before the next lesson.