Applicability of the Linear CVP Model in the Indian Cement Sector

Abstract

The Cost-Volume-Profit (CVP) model is a model for analyzing a firm's cost and revenue structure, and it is widely used in practice to examine the possible impacts of a range of strategic decisions. In spite of its theoretical appeal, however, the CVP model has had very little application empirically. This study examines the applicability of the CVP model empirically for the Indian cement sector using linear regression. The results of the study indicate that though the simple CVP model with linear cost and revenue functions does offer some interesting insights, there are anomalies in several cases. Thus, the CVP model with nonlinear cost and revenue functions may be more appropriate in explaining the cost and revenue structure for companies in the Indian cement sector.