Cost-Volume-Profit Analysis Adjusted for Learning

Abstract

A model is developed for cost-volume-profit analysis which incorporates a nonlinear cost function to express the effects of employee learning. Sensitivity analysis is applied to the model to assess the impact of estimation errors in the learning rate and steady-state production time on estimated profit and break-even quantities. The paper also examines the effects on the model of (1) alternative accounting treatments of production-related costs, and (2) continuous learning due to employee turnover.