The use of a fuzzy logic-based system in cost-volume-profit analysis under uncertainty

The purpose of this paper is to present an application of fuzzy logic to cost-volume-profit (CVP) analysis. The conventional analytical tool cost-volume-profit, commonly called breakeven analysis (BE), is used widely in managerial decision making. In its basic form, CVP analysis examines sales prices, sales volume, variable costs and fixed costs in relation to target profit levels. This traditional CVP analysis, however, ignores the risk and uncertainty features of a firm’s operations, thus severely limits its usefulness. During the past 10 years, accountants have attempted to resolve this problem by using stochastic analysis. The use of stochastic analysis in a CVP analysis model is a great step forward in providing more useful information for profit planning. Nevertheless, so far a powerful approach for solving the problem is still lacking because there remains imprecision in an expert’s assessment of uncertainty factors. This paper presents a model that utilizes experts’ knowledge, employs the fuzzy set concept to handle imprecision, and then to establish a fuzzy logic-based system for managers to access and evaluate the cost-volume-profit decision making process, and finally to make the right decision. 2007 Elsevier Ltd. All rights reserved.