Exploring the Applicability of the CVP Model in the Indian Cement Sector

Abstract

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.