CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis. Do you agree? Explain.
CVP certainly is simple, with its assumption of output as the only revenue and cost driver, and linear revenue and cost relationships. Whether these assumptions make it simplistic depends on the decision context. In some cases, these assumptions may be sufficiently accurate for CVP to provide useful insights. The examples in Chapter 3 (the software package context in the text and the travel agency example in the Problem for Self-Study) illustrate how CVP can provide such insights. In more complex cases, the basic ideas of simple CVP analysis can be expanded.
More: What is Cost-Volume-Profit (CVP) Analysis?