2 - Collins



4.2.3 Break-even charts: Activity

Activity type

Calculation exercise

Time

15 minutes

Content

Contribution

Key terms

Break-even; contribution; fixed costs; loss; profit; revenue; total cost; variable costs

Objective

To understand and use the concept of contribution (4.2.3)

Skills practised

|AO1: Knowledge and understanding |( |

|AO2: Application |( |

|AO3: Analysis |( |

|AO4: Evaluation | |

Preparation

Make one copy of Activity sheet 4.2.3D for every student in the class.

Procedure

1. Print ‘The concept’ from Activity Sheet 4.2.3D and cut this into sections.

2. Mix these sections up and issue a set to each student. Instruct students to order the text in the correct order.

3. Check the order is correct and then ask students to stick the notes in their books.

4. Alternatively, you could use ‘The concept’ from Activity Sheet 4.2.3D to create a gapped worksheet. Delete certain phrases and instruct students to fill in the gaps.

1. Ask students to complete the calculation exercise on Activity Sheet 4.2.3D.

Teacher tip: Depending on the ability profile of your group, you may wish to cut ‘The concept’ into longer or shorter sections. If creating a gapped worksheet, you may give the missing words to some, all or none of your students. Again, this depends on the ability profile of your students.

Answers to Activity Sheet 4.2.3D

Calculation

1. Contribution per unit = $1.25

2. Break-even at the old fixed costs level ($750) = 600 rides (units)

3. Break-even at the new fixed costs level ($850) = 680 rides (units)

4. The number of customers per day required in each case = 30 rides / 34 rides

5. Profit or loss if she achieves 50 rides per day:

Revenue: $100 x 20 days = $2000

Variable Costs: (50 x $0.75) x 20 days = $750

Old Fixed Costs: $750

Old Profit: $2,000 – ($750 + $750) = $500

New Fixed Costs: $850

New Profit: $2,000 – ($850 + $750) = $400

Analysis

She doesn’t need to worry! The new bike has reduced her profit but she still makes a good return, especially in the context of Nigeria (A02). However she could: ensure that she always works during peak times (AM and PM); consider working 6 days per week (reducing the number of rides required per day); consider ways to cut fuel costs per journey; target office workers taking short journeys so she can turnover more customers; promote the benefits of her newer (and perhaps safer) bike for customers.

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