The Cost-Volume-Profit
(CVP) model is a simple model for analyzing a firm’s cost and revenue structure
and a very versatile technique for profit planning, and it is widely used in
practice to examine the possible impacts of a range of strategic decisions.
However, despite its several extensions and theoretical appeal, the CVP model
has had very little empirical application. The present study analyses the
applicability of the CVP model empirically for the Indian cement sector using
linear and quadratic regression. The results of the study indicate that though
the simple CVP model with linear cost and revenue functions does offer some
powerful insights, the CVP model with quadratic cost and revenue functions is
more appropriate for explaining the cost and revenue structure of companies in
the cement sector.
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