Abstract This article presents information related to the article "Cost-Volume-Profit Analysis Under Conditions of Uncertainty," by researchers Robert K. Jaedicke and Alexander A. Robichek. The fact that the traditional "cost-volume profit analysis" does not include adjustments for uncertainty severely limits its usefulness. Jaedicke and Robichek explain that if a firm is considering the introduction of two new products with the same expected fixed costs, the same expected selling price per unit, the same expected variable costs per unit and the same expected breakeven sales volume, one may be misled to think that the two products are equally desirable. This is not true for one good reason: determining which product is more desirable depends upon the frequency distributions of all the variables that influence profit, not just their expected values. Furthermore, it is more instructive to compare two profit distributions not only by their expected values but also in terms of their variances. Use of the Jaedicke-Robichek model enables one to compute the expected value and the standard deviation of profit for a given product. This information enables a manager to estimate the probability of achieving the breakeven point, as well as the probability of achieving any level of profit or loss.
Ferrara et al. (1972) studied this question.