John Wiley &

Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (
Cost Management
Measuring, Monitoring, and Motivating Performance
Prepared by Prepared by
Gail Kaciuba Gail Kaciuba
Midwestern State University Midwestern State University
Chapter 3
Cost!olumeProfit "nalysis
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2
Chapter 3: Cost-Volume-Profit Analysis
Learning objectives

Q1: What is cost-volume-profit (CVP anal!sis" an# ho$ is it

use# for #ecision ma%ing&

Q': (o$ are CVP calculations performe# for a single

pro#uct&

Q): (o$ are CVP calculations performe# for multiple

pro#ucts&

Q*: What is the brea%even point&

Q+: What assumptions an# limitations shoul# managers

consi#er $hen using CVP anal!sis&

Q,: (o$ are the margin of safet! an# operating leverage

use# to assess operational ris%&
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 3
units
-
.otal Costs (.C
.otal /evenue (./
Q1, Q4: CVP Analysis and the Breakeven Point

.he brea%even point (01P is $here total revenue

e2ual total costs3

CVP anal!sis loo%s at the relationship bet$een

selling prices" sales volumes" costs" an# profits3
01P in units
01P in
sales -
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) *
Q1: o! is CVP Analysis "sed#

CVP anal!sis can #etermine" both in units an# in

sales #ollars:

the volume re2uire# to brea% even

the volume re2uire# to achieve target profit levels

the effects of #iscretionar! e4pen#itures

the selling price or costs re2uire# to achieve target

volume levels

CVP anal!sis helps anal!5e the sensitivit! of profits

to changes in selling prices" costs" volume an#
sales mi43
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 5
Q$: CVP Cal%ulations for a &in'le Produ%t
.o fin# the brea%even point in units" set Profit 6 73
Profit
-
F
Q
P V
+
= =
8nits re2uire# to
achieve target
preta4 profit
$here F 6 total fi4e# costs
P 6 selling price per unit
V 6 variable cost per unit
P - V 6 contribution margin per unit
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) +
Q$: CVP Cal%ulations for a &in'le Produ%t
.o fin# the brea%even point in sales -" set Profit 6 73
Profit F
CMR
+
=
9ales - re2uire#
to achieve target
preta4 profit
$here F 6 total fi4e# costs
CMR 6 contribution margin ratio
6 (P- V:P
.otal /evenue .otal Variable Costs
.otal /evenue
CMR

=
;ote that CMR
can also be
compute# as
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) ,
0ill<s 0riefcases ma%es high 2ualit! cases for laptops that sell for -'773
.he variable costs per briefcase are -=7" an# the total fi4e# costs are
-),7"7773 >in# the 01P in units an# in sales - for this compan!3
Q$: Breakeven Point Cal%ulations
01P in units
7 F
P V
+
=

-),7"777
-'77: unit -=7: unit
=

-),7"777
)"777 units
-1'7: unit
= =
( :
F
P V P
=

-),7"777
-,77"777
,7?
= =
01P in sales -
7 F
CMR
+
=
-),7"777
(-'77 -=7 : -'77
=

John Wiley &

Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) -
units
-1777s
.C
./
)777
-,77
Q$: CVP (raph
@ra$ a CVP graph for 0ill<s 0riefcases3 What is the preta4 profit if 0ill
sells *177 briefcases& Af he sells ''77 briefcases& /ecall that P 6
-'77" V 6 -=7" an# F 6 -),7"7773
-),7
*177 ''77
Profit at *177 units 6
-1'7 4 *177 - -),7"7773
-1)'"777
--B,"777
Profit at ''77 units 6 -1'7 4 ''77 - -),7"7773
Core easil!: *177 units is 1177 units past 01P"
so profit 6 -1'7 4 1177 unitsD ''77 units is =77
units before 01P" so loss 6 -1'7 4 =77 units3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) .
(o$ man! briefcases #oes 0ill nee# to sell to reach a target preta4
profit of -'*7"777& What level of sales revenue is this& /ecall that P 6
-'77" V 6 -=7" an# F 6 -),7"7773
Q$: CVP Cal%ulations
8nits nee#e# to
reach target
preta4 profit
Profit F
P V
+
=

-),7"777 -'*7"777
-1'7: unit
+
=
+"777 units =
-,77"777
-1"777"777
,7?
= =
( :
F
P V P
=

9ales - re2uire#
to reach target
preta4 profit
-'*7"777 F
CMR
+
=
Ef course" +"777 units 4
-'77:unit 6 -1"777"777"
too3
0ut sometimes !ou onl!
%no$ the CC/ an# not
the selling price per
unit" so this is still a
valuable formula3
Ef course" +"777 units 4
-'77:unit 6 -1"777"777"
too3
0ut sometimes !ou onl!
%no$ the CC/ an# not
the selling price per
unit" so this is still a
valuable formula3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (0
(o$ man! briefcases #oes 0ill nee# to sell to reach a target after-ta4
profit of -)1B"'77 if the ta4 rate is )7?& What level of sales revenue is
this& /ecall that P 6 -'77" V 6 -=7" an# F 6 -),7"7773
Q$: CVP Cal%ulations
>irst convert the target after-ta4 profit to its target preta4 profit:
Ffter-ta4 profit -)1B"'77
Preta4 profit -*+,"777
(1 .a4 rate (1 73)
= = =

8nits nee#e# to
reach target
preta4 profit
-),7"777 -*+,"777
,"=77 units
-1'7: unit
+
= =
9ales - nee#e#
to reach target
preta4 profit
-),7"777 -*+,"777
-1"),7"777
,7?
+
= =
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) ((
9uppose that 0ill<s mar%eting #epartment sa!s that he can sell ,"777
briefcases if the selling price is re#uce# to -1G73 0ill<s target preta4
profit is -'17"7773 @etermine the highest level that his variable costs
can so that he can ma%e his target3 /ecall that F 6 -),7"7773
Q1,$: "sin' CVP to )etermine *ar'et Cost +evels
8se the CVP formula for units" but solve for V:
Q 6 ,"777 units
-),7"777 -'17"777
-1G7:unit V
+
=

Af 0ill can re#uce his variable costs to -G+:unit" he can meet his goal3
-G+:unit V =
-),7"777 -'17"777
-1G7:unit -B+:unit
,"777 units
V
+
= =
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (2
Q,: "n%ertainties in Bill-s )e%ision

Ffter this anal!sis" 0ill nee#s to consi#er several

issues before #eci#ing to lo$er his price to
-1G7:unit3

(o$ reliable are his mar%eting #epartment<s estimates&

As a -+:unit #ecrease in variable costs feasible&

Will this #ecrease in variable costs affect pro#uct 2ualit!&

Af ,"777 briefcases is $ithin his plant<s capacit! but lo$er

than his current sales level" $ill the increase# pro#uction
affect emplo!ee morale or pro#uctivit!&
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (3
Q1: "sin' CVP to Compare Alternatives

CVP anal!sis can compare alternative cost

structures or selling prices3

high salar!:lo$ commission vs3 lo$er salar!:higher

commission for sales persons

highl! automate# pro#uction process $ith lo$ variable

costs per unit vs3 lo$er technolog! process $ith higher
variable costs per unit an# lo$er fi4e# costs3

.he in#ifference point bet$een alternatives is the

level of sales (in units or sales - $here the profits of
the alternatives are e2ual3

broa# a#vertising campaign $ith higher selling prices vs3

minimal a#vertising an# lo$er selling prices
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (*
Currentl! 0ill<s salespersons have salaries totaling -=7"777 (inclu#e#
in > of -),7"777 an# earn a +? commission on each unit (-17 per
briefcase3 (e is consi#ering an alternative compensation arrangement
$here the salaries are #ecrease# to -)+"777 an# the commission is
increase# to '7? (-*7 per briefcase3 Compute the 01P in units un#er
the propose# alternative3 /ecall that P 6 -'77 an# V 6 -=7 currentl!3
Q1,$: "sin' CVP to Compare Alternatives
>irst compute F an# V un#er the propose# plan:
F 6 -),7"777 - -*+"777 #ecrease in salaries 6 -)1+"777
V 6 -=7 H -)7 increase in commission 6 -117
.hen compute Q un#er the propose# plan:
8nits
nee#e# to
brea%even
7 F
Q
P V
+
= =

-)1+"777
)"+77 units
-'77: unit - -117:unit
= =
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (5
Q1: )eterminin' the .ndifferen%e Point
Compute the volume of sales" in units" for $hich 0ill is in#ifferent
bet$een the t$o alternatives3
.he in#ifference point in units is the Q for $hich the profit e2uations
of the t$o alternatives are e2ual3
Current Plan Propose# Plan
Contribution margin per unit -1'7 -B7
.otal fi4e# costs -),7"777 -)1+"777
Profit (current plan 6 -1'7Q - -),7"777
Profit (propose# plan 6 -B7Q - -)1+"777
-1'7Q - -),7"777 6 -B7Q - -)1+"777
-)7Q 6 -*+"777 Q 6 1"+77 units
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (+
Q1,$: CVP (raphs of the .ndifferen%e Point
@ra$ a CVP graph for 0ill<s that #ispla!s the costs un#er both
alternatives3 ;otice that the total revenue line for both alternatives is
the same" but the total cost lines are #ifferent3
.C-current plan
./
units
-1777s
)777
-,77
-),7
)+77
-)1+
.C-propose# plan
1+77
01P for the
current plan
01P for the
propose# plan
in#ifference point bet$een the plans
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (,
.C-current plan
./
units
-1777s
)777
-,77
Q1,$: Comparin' Alternatives
-),7
)+77
-)1+
.C-propose# plan
1+77
.he current plan brea%s even before the propose# plan3
Ft 1+77 units" the plans have the same total cost3
1ach unit sol#
provi#es a larger
contribution to profits
un#er the current
plan3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (-
Q,: "n%ertainties in Bill-s )e%ision

(opefull! 0ill is currentl! selling more than 1+77

briefcases" because profits are negative un#er
0E.( plans at this point3

.herefore" it seems the current plan is preferable to

the propose# plan3
However, . . .

.he total costs of the current plan are less than the
those of the propose# plan at sales levels past
1+77 briefcases3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) (.
Q,: "n%ertainties in Bill-s )e%ision
3 3 3 this ma! not be true because the level of future
sales is al$a!s uncertain3

What if the briefcases $ere a ne$ pro#uct line&

.he plans ma! create #ifferent estimates of the

li%elihoo# of various sales levels3

1stimates of sales levels ma! be highl! uncertain3

.he lo$er fi4e# costs of the propose# plan ma! be

safer3

9alespersons ma! have an incentive to sell more

units un#er the propose# plan3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 20
Q3: CVP Analysis for /ultiple Produ%ts
When a compan! sells more than one pro#uct the
CVP calculations must be a#juste# for the sales
mi43 .he sales mi4 shoul# be state# as a proportion

of total units sol# $hen performing CVP

calculations for in units3

of total revenues $hen performing CVP

calculations in sales -3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2(
Q3: &ales /i0 Computations

.he $eighte# average contribution margin is the

$eighte# sum of the pro#ucts< contribution margins:
n
i61
i i
WFCC CC =
$here
i
is pro#uct i<s ? of total sales
in units" CC
i
is pro#uct i<s contribution
margin" an# n6 the number of
pro#ucts3
n
i61
i i
WFCC/ CC/ =
$here
i
is pro#uct i<s ? of total
sales revenues" CC/
i
is pro#uct i<s
contribution margin ratio" an# n6
the number of pro#ucts3

.he $eighte# average contribution margin ratio is

the $eighte# sum of the pro#ucts< contribution
margin ratios:
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 22
Pegg!<s Iitchen Wares sells three si5es of fr!ing pans3 ;e4t !ear she
hopes to sell a total of 17"777 pans3 Pegg!<s total fi4e# costs are
-*7"=773 1ach pro#uct<s selling price an# variable costs is given
belo$3 >in# the 01P in units for this compan!3
Q3: /ultiple Produ%t Breakeven Point
9mall Ce#ium Large .otal
14pecte# sales in units '"777 +"777 )"777 17"777
9elling price per unit -17377 -1+377 -1=377
Variable costs per unit -*377 -=377 -11377
Contribution margin per unit -,377 -G377 -G377
>irst note the sales mi4 in units is '7?:+7?:)7?" respectivel!D then
compute the $eighte# average contribution margin:
WFCC 6 '7?4-, H +7?4-G H )7?4-G 6 -,3=7
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 23
Q3: /ultiple Produ%t Breakeven Point
0ut ,"777 units is not reall! the 01P in unitsD the 01P is onl! ,"777 units if
the sales mi4 remains the same3
0ut ,"777 units is not reall! the 01P in unitsD the 01P is onl! ,"777 units if
the sales mi4 remains the same3
;e4t" compute the 01P in terms of total units:
.otal units
nee#e# to
brea%even
7 F
Q
P V
+
= =

-*7"=77
,"777 units
-,3=7:unit
= =
.he 01P shoul# be state# in terms of ho$ man! of each unit must be sol#:
8nits re2uire# to brea% even:
9mall pans '7? 1"'77
Ce#ium pans +7? )"777
Large pans )7? 1"=77
,"777
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2*
>in# the 01P in sales - for Pegg!<s Iitchen Wares3 .he total revenue
an# total variable cost information belo$ is base# on the e4pecte#
sales mi43
Q3: /ultiple Produ%t Breakeven Point
>irst compute the $eighte# average contribution margin ratio:
WFCC/ 6 ('7:1*B4,7? H (G+:1*B4*,3G? H (+*:1*B4)=3B? 6
9mall Ce#ium Large .otal
14pecte# sales in units '"777 +"777 )"777 17"777
.otal revenue -'7"777 -G+"777 -+*"777 -1*B"777
.otal variable costs -="777 -*7"777 -))"777 -=1"777
.otal contribution margin -1'"777 -)+"777 -'1"777 -,="777
Contribution margin ratio ,737? *,3G? )=3B? *+3,?
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 25
Q3: /ultiple Produ%t Breakeven Point
;e4t compute the 01P in sales -:
3 3 3 6 *+3,?" of courseJ @epen#ing on ho$ the given
information is structure#" it ma! be easier to compute the
CC/ as .otal contribution margin:.otal revenue3
01P in sales -
7 F
CMR
+
=
-*7"=77
-=B"*G*
73*+,
= =
/
K Af !ou sum the number of units of each si5e pan re2uire#
at brea%even times its selling price !ou get -=B"*773 .he
e4tra -G* in the ans$er above comes from roun#ing the
contribution margin ratio to three #ecimals3
K Af !ou sum the number of units of each si5e pan re2uire#
at brea%even times its selling price !ou get -=B"*773 .he
e4tra -G* in the ans$er above comes from roun#ing the
contribution margin ratio to three #ecimals3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2+
Q1: /ar'in of &afety
.he margin of safet! is a measure of ho$ far past
the brea%even point a compan! is operating" or
plans to operate3 At can be measure# ) $a!s3
margin of
safet! in units
actual or estimate# units of
activit! L 01P in units
6
margin of
safet! in -
actual or estimate# sales -
L 01P in sales -
6
margin of
safet!
percentage
6
Cargin of safet! in units
Fctual or estimate# units
Cargin of safet! in -
Fctual or estimate# sales -
=
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2,
9uppose that 0ill<s 0riefcases has bu#gete# ne4t !ear<s sales at +"777
units3 Compute all three measures of the margin of safet! for 0ill3
/ecall that P 6 -'77" V 6 -=7" F 6 -),7"777" the 01P in units 6 )"777"
an# the 01P in sales - 6 -,77"7773
Q1: /ar'in of &afety
margin of safet! in units 6 +"777 units L )"777 units 6 '"777 units
margin of safet! in - 6 -'77 4 +"777 - -,77"777 6 -*77"777
margin of safet! percentage
'"777 units -*77"777
6 6 6 *7?
+"777 units -'77 4 +"777
.he margin of safet! tells 0ill ho$ far sales can
#ecrease before profits go to 5ero3
.he margin of safet! tells 0ill ho$ far sales can
#ecrease before profits go to 5ero3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2-
Q1: )e'ree of 2peratin' +evera'e

.he #egree of operating leverage measures the

e4tent to $hich the cost function is comprise# of
fi4e# costs3

F high #egree of operating leverage in#icates a

high proportion of fi4e# costs3

0usinesses operating at a high #egree of operating

leverage

but enjo! profits that rise more 2uic%l! $hen sales

increase3

face higher ris% of loss $hen sales #ecrease"

John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 2.
Q1: )e'ree of 2peratin' +evera'e
.he #egree of operating leverage can be compute#
) $a!s3
Contribution margin
Profit
>i4e# costs
H 1
Profit
1
Cargin of safet! percentage
#egree of
operating 6
leverage
#egree of
operating 6
leverage
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 30
9uppose that 0ill<s 0riefcases has bu#gete# ne4t !ear<s sales at +"777
units3 Compute 0ill<s #egree of operating leverage3 /ecall that P 6
-'77" V 6 -=7" F 6 -),7"777" an# the margin of safet! percentage at
+"777 units is *7?3
Q1: )e'ree of 2peratin' +evera'e
>irst" compute contribution margin an# profit at +"777 units:
Profit 6 -,77"777 - -),7"777 6 -'*7"777
-,77"777
@egree of operating leverage 6 6 '3+
-'*7"777
Contribution margin 6 (-'77 - -=7 4 +"777 6 -,77"777
1
or" #egree of operating leverage 6 6 '3+
*7?
-),7"777
or" #egree of operating leverage 6 H 1 6 '3+
-'*7"777
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 3(
Q1: "sin' the )e'ree of 2peratin' +evera'e

.he #egree of operating leverage sho$s the

sensitivit! of profits to changes in sales3

En the prior sli#e 0ill<s #egree of operating leverage

$as '3+ an# profits $ere -'*7"7773
K -'*7"777 4 13+ 6 -),7"777

Af e4pecte# sales $ere to increase to ,"777 units"

a '7? increase" then profits $oul# increase b!
'3+ 4 '7?" or +7?" to -),7"7773K

Af e4pecte# sales $ere to #ecrease to *"+77 units"

a 17? #ecrease" then profits $oul# #ecrease b!
'3+ 4 17?" or '+?" to -1=7"7773KK
KK -'*7"777 4 73G+ 6 -1=7"777
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 32
Q,: Assumptions in CVP Analysis
CVP anal!sis assumes that costs an# revenues are
linear $ithin a relevant range of activit!3

Linear total revenues means that selling prices per unit

are constant an# the sales mi4 #oes not change3

Af volume #iscounts are receive# from suppliers" then

variable costs per unit are not constant3

Effering volume #iscounts to customers violates this

assumption3

Linear total costs means total fi4e# costs are constant

an# variable costs per unit are constant3

Af $or%er pro#uctivit! changes as activit! levels change"

then variable costs per unit are not constant3
John Wiley &
Sons, 2005
Chapter 3: Cost-Volume-
Profit nalysis
!l"en#ur$ & Wol%ott&s
Cost 'ana$ement, (e Sli"e ) 33
Q,: Assumptions in CVP Analysis

.hese assumptions ma! in#uce a small relevant

range3

/esults of CVP calculations must be chec%e# to see if

the! fall $ithin the relevant range3

;onlinear anal!sis techni2ues are available3

Linear CVP anal!sis ma! be inappropriate if the

linearit! assumptions hol# onl! over small ranges
of activit!3

>or e4ample" regression anal!sis" along $ith nonlinear

transformations of the #ata" can be use# to estimate
nonlinear cost an# revenue functions3