Break-Even Lesson
Students who have studied GCSE will have had an opportunity to study break-even. Break-even is an important concept to grasp. Too often students encounter problems when attempting exam questions. Typical mistakes include not placing the decimal point in the correct place and labelling the break-even point as ?’s rather than units.
Break-even is an area of the specification that tends to be assessed regularly. For examiners it is an opportunity to stretch and challenge students. Some students would rather leave a break-even question blank rather than attempt it. This is a mistake. Failing to answer a question is a guarantee that students will not gain any marks. In contrast, a partially answered question will gain marks, particularly if workings out are shown.
It is a good idea for students to work through an example with the teacher. Students who struggle with numerical tasks may need additional help. It is worthwhile working out an appropriate scale for the break-even diagram before starting and providing those students who are having difficulty with a photocopied example of how to label the axes and what scale to use.
Students should already understand the difference between fixed costs and variable costs. They should also know how to calculate a firm’s revenue. Start
the lesson by recapping definitions of fixed and variable costs and get students to identify examples of fixed and variable costs.
At this point it is appropriate to explain the importance of calculating break-even for a new business.
When explaining how to draw the break-even diagram it is important to take your time. Students will work at very different speeds. If you provide the students with a workbook their notes will be well organised and the confident students can work at their own pace.
Get students to draw the diagram one step at a time, explaining why the fixed cost, variable costs and revenue cost lines look the way they do. Good questioning will encourage students to explain what the curves will look like before they are drawn.
Having drawn the break-even diagram, it is appropriate to get students into the habit of labelling the diagrams correctly and indicating the area of loss and area of profit on the diagram.
Many students drawing a break-even diagram will make an error. Lines may not be straight or may not be drawn from the right point. It is important to spend time with students explaining why their diagrams may not be correct.
At this stage it is appropriate to introduce the contribution method of calculating break-even. This can be used to reduce inaccuracy when drawing a break-even diagram. Use the figures from the example which students have
already been drawn in order to calculate the break-even point. Having shown
students how to calculate the break-even point, change the figures and get
the students to substitute the new figures into the equation.
Once the students have the equation to calculate break-even then they can
be asked to apply the technique to a number of different problems. Gradually
they can be challenged to work out different pieces of information such as the
break-even point, margin of safety, profit achieved and the effect of changing
certain variables.
In a follow-up lesson it is a good idea to give students further examples to test
their ability to apply knowledge to problem-solving contexts. It is important that
students realise that it is not sufficient that they are able to calculate break-
even they also need to be able to identify the strengths and limitations of the
technique.
In an exam, students will be expected to use the contribution method because
in a one and a quarter hour exam they will not have time to draw an
appropriate diagram.
The following link is a good way of bringing a lesson to a close, since it
provides a brief summary of how to draw a break-even diagram:
http://www.youtube.com/watch?v=TLOo2mY6FIw
A typical lesson plan for this type of activity is shown below.
LESSON PLAN
COURSE: A – Level
SUBJECT : Business Studies AIMS
The aim of the lesson is to introduce students to the concept of break-even.
Students should gain an appreciation of the relationship between costs and
revenue.
Students should understand the importance of setting prices in order to
ensure that costs can be covered. Students will be encouraged to identify the
value of determining break-even.
The lesson should provide students with an opportunity to demonstrate their
ability to calculate the point at which costs are covered and demonstrate
application of number.
OBJECTIVES
Students should know and understand the difference between fixed and
variable costs.
Students will develop an understanding of the method of calculating break-even.
Students will have an opportunity to work through an example together. They
will then learn how to calculate the break-even point using the contribution
method.
Students will gain an insight into the benefits and limitations of calculating
break-even.
MOTIVATOR: Specification requirements and need to address Key skill
PRIOR KNOWLEDGE: No prior knowledge
RESOURCES: Worksheets and powerpoint presentation. Video clip
ACTIVITY
DURATION DESCRIPTION Lecturer Student
? 5 minutes Introduction
The activity will be introduced. Students
will be given worksheets. Initial ? ? 25 minutes calculation of breakeven will be done as a
group, one stage at a time.
Explanation of how to calculate break-? 10 minutes even using the mathematical formula.
? Calculating break-even examples 20 minutes
Get students to draw a break-even
? 45 minutes diagram and calculate the effect of
changes to output and price.
? Review of break-even 5 minutes
ASSESSMENT
Student participation will be monitored by the lecturer. Student answers
will be checked during class. Further tasks will be completed by students
in order to check understanding.