Operationalizing Cost-Volume-Profit analysis under uncertainty

Abstract

Cost-Volume-Profit analysis is a major business planning tool. It is limited by its assumptions about known price and costs. This study uses MAPLE software to operationalize CVP under uncertainty for practical application. Illustrated examples show that the impact of expected selling price and expected variable cost on expected breakeven quantity is more sensitive than the impact of the standard deviations of selling price and variable cost. Specifically, when expected selling price decreases, the expected breakeven quantity increases rapidly. However, as the standard deviations of selling price or variable cost increases, expected breakeven quantity increases at the same rate.