Quadratic Cost-Volume Relationship and Timing of Demand Information.
Let us now summarize the major results of our analyses. First, after discussing the useful properties of a quadratic cost curve, we showed how the timing of information might actually be evaluated relative to the flexibility of operations. We provided a model in which the timing of information alone (not its content) can affect the profit of the firm not in an all-or-nothing fashion but as a factor that may hopefully make a procrastinator more aware of his guilt. Specifically, our analysis of the effect of the timing of perfect information on the total cost of a firm showed that there is a law of increasing marginal loss with respect to information delay. This analysis also serves as an example of how the framework of information evaluation developed by accountants and information economists can be utilized to yield a specific result. We then demonstrated how the quadratic daily cost-volume relationship might be used to evaluate monthly cost performance. The cost variance analysis showed how the forecasting and information gathering ability of the sales department can he evaluated along with the "genuine" cost performance of production operations. We also analyzed the problem of the optimal balance between the timing and accuracy of information in the case where earlier information is of less accuracy. We were able to derive an optimal information timing explicitly from our imperfect information model. Finally, we pointed out that a study on cost curves may have to be more sensitive to the time period on which the cost curve is constructed. A cost curve is not homogeneous with respect to the length of time of the period. A monthly cost curve may have quite a different shape from a daily cost curve if we allow the production manager to optimize.
- DOI
- 10.2308/tar-4482413
- Volume
- 48 (4)
- Pages
- 724-737
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref