AN APPROACH TO COST—VOLUME—PROFIT ANALYSIS UNDER UNCERTAINTY *

AN APPROACH TO COST—VOLUME—PROFIT ANALYSIS UNDER UNCERTAINTY * ABSTRACT Cost‐Volume‐Profit analysis is a tool of cost accountants aiding in the choice of an optimal course of action in the solution of a managerial problem. C‐V‐P is a limited analysis since all the needs of management in determining the optimal strategy are not fulfilled. Factors pertinent to the choice of the optimal strategy under uncertainty are variables, although traditional C‐V‐P treats these factors as constants. Hence, an approach to C‐V‐P where pertinent factors necessary for decision making are considered as variables is more desirable than traditional C‐V‐P. By introducing uncertainty, it is also beneficial to broaden C‐V‐P to fulfill the following desire of management. Should management choose a course of action based only on its own estimates of the decision parameters or is it advisable to postpone a terminal decision until additional research into the decision parameters is accomplished? Broadened C‐V‐P solves this problem with the aid of Bayesian Decision Theory for the choice of the optimal course of action in the face of uncertainty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Decision Sciences Wiley

AN APPROACH TO COST—VOLUME—PROFIT ANALYSIS UNDER UNCERTAINTY *

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
Copyright © 1973 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0011-7315
eISSN
1540-5915
D.O.I.
10.1111/j.1540-5915.1973.tb00565.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Cost‐Volume‐Profit analysis is a tool of cost accountants aiding in the choice of an optimal course of action in the solution of a managerial problem. C‐V‐P is a limited analysis since all the needs of management in determining the optimal strategy are not fulfilled. Factors pertinent to the choice of the optimal strategy under uncertainty are variables, although traditional C‐V‐P treats these factors as constants. Hence, an approach to C‐V‐P where pertinent factors necessary for decision making are considered as variables is more desirable than traditional C‐V‐P. By introducing uncertainty, it is also beneficial to broaden C‐V‐P to fulfill the following desire of management. Should management choose a course of action based only on its own estimates of the decision parameters or is it advisable to postpone a terminal decision until additional research into the decision parameters is accomplished? Broadened C‐V‐P solves this problem with the aid of Bayesian Decision Theory for the choice of the optimal course of action in the face of uncertainty.

Journal

Decision SciencesWiley

Published: Jul 1, 1973

References

  • A Stochastic Cost‐Volume‐Profit Analysis
    Kim, Kim

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