The Accounting Review Vol. 51 No. 1 1976
CVP Analysis under Uncertainty -- A Log Normal Approach: A Comment.
Abstract
The article focuses on cost-volume-profit (CPV) analysis. Professors J.E. Hilliard and R.A. Leitch have recently proposed recently that the primary variables in the standard CVP equation be assumed lognormally distributed. They claim two major advantages for using this distribution form. Using lognormal distributions solves the problem associated with the multiplicative operation. The distribution form is more appropriate for describing the behavior of the primary variables. Authors feel that these claims warrant careful scrutiny. The basic CVP equation is presented in the article. It is described that to study functions of several random variable samples analytically is generally difficulty. Authors emphasize that although using lognormal distributions will simplify the multiplicative operation; the subtractions become problematic, since subtracting one lognormally distributed from another produces complicated distribution forms. Using the lognormal distribution necessitates grouping two of the primary variables together and fixing a third one constant; as a result, the richness of the model is reduced considerably.
- DOI
- 10.2308/tar-4503083
- Volume
- 51
- Issue
- 1
- Pages
- 163-167
- Language
- en
- Sources
- openalex crossref