A Comprehensive Cost-Volume-Profit Analysis Under Uncertainty.

Abstract

Abstract This study presents a comprehensive approach to cost-volume-profit analysis under uncertainty. It combines the probability characteristics of the environmental variables with the risk preferences of decision makers. The approach is based on recently suggested economic models of the firm's optimal output decision under uncertainty, which were modified here within the mean-standard deviation framework to provide for a cost-volume-utility analysis allowing management to: (1) determine optimal output, (2) consider the desirability of alternative plans involving changes in fixed and variable costs, expected price and uncertainty of price and technology changes and (3) determine the economic consequences of fixed cost variances.