The Accounting Review Vol. 39 No. 4 1964
COST-VOLUME-PROFIT ANALYSIS UNDER CONDITIONS OF UNCERTAINTY.
Abstract
Cost-volume-profit (C-V-P) analysis is frequently used by management as a basis for choosing among alternatives such decisions as, the sales volume required to attain a given level of profits, and the most profitable combination of products to produce and sell are examples of decision problems where C-V-P analysis is useful. However, the fact that traditional C-V-P analysis does not include adjustments for risk and uncertainty may, in any given instance, severely limit its usefulness. In many cases, the choice among alternatives is facilitated greatly by C-V-P analysis. However, traditional C-V-P analysis does not take account of the relative risk of various alternatives. The interaction of costs, selling prices and volume are important in summarizing the effect of various alternatives on the profits of the firm. The techniques discussed in this paper preserve the traditional analysis but also add another dimension, that is, risk is brought in as another important decision factor. The statement of probabilities with respect to various levels of profits and losses for each alternative should aid the decision maker once his attitude toward risk has been defined.
- DOI
- 10.2308/tar-7109173
- Volume
- 39
- Issue
- 4
- Pages
- 917-926
- Language
- en
- Sources
- crossref openalex