Luis Español González

Multiproduct CVP analysis based on contribution rules

Abstract The basic cost-volume-profit (CVP) model – linear, non-stochastic and restricted to one product – has been the subject of research work aimed at relaxing these limiting assumptions. Regarding its extension to a multiproduct situation, the two alternatives are to use a standard mix, or to apply linear programming. This paper develops an alternative model for multiproduct CVP. It uses data provided by ABC systems designed to keep track of variable and fixed costs, and requires the model user to formulate a contribution rule that will allow to compute, for each product, the output required to achieve a given (target) profit.