CVP ANALYSIS INCORPORATING THE COST OF CAPITAL ON R&D INVESTMENT

摘要

Cost-volume-profit (CVP) analysis is a widely used tool for managerial planning. The failure of CVP analysis to incorporate the cost of capital into a product's cost function can lead to underestimating a product's cost, while overstating its profitability. This paper proposes another variation of the CVP analytical model to include cost of capital on R&D investment and its risk level on strategic decisions. The modified CVP model provides more useful information to management because it focuses on more specific type of investment which has particular characteristics. The CVP model developed is more complex, because it includes risk and uncertainty for the expected revenue, and specifies the R&D expense as percentage of total sales. However, the model still needs further development.