C-V-P ANALYSIS UNDER UNCERTAINTY
A major limitation of the basic C.V.P analysis is the assumption that the unit variable cost, selling price and the fixed costs are constant and can be predicted with certainty. These factors however are variables with expected values and standard deviations that can be estimated by management.
There are different ways of dealing with uncertainty. Examples comprise:
- Sensitivity analysis
- Point estimate of probabilities
- Continuous probability distribution example, normal distribution
- Simulation analysis
- Margin of safety