Cost-volume-profit Analysis Method Based on Activity-Based Costing

Conventional cost-volume-profit (CVP) analysis method is based on variance costing as its theoretical basis and regards partition of fixed cost and variable cost as the premise. Activity-based costing (ABC) has shaken its academic basis. ABC has also changed the conception of cost behavior based on variance costing. Cost is no longer simply separated as variable cost and fixed cost, but as short-term variable cost、long-term variable cost and fixed cost. According to ABC, we should modify the traditional CVP model. The paper is based on such perception that ABC has modified the CVP model in order to make it reveal the internal relation of profit, price, quantity, unit variable cost、unit activity cost、activity volume and facility-level cost, and has broaden the application of Sensitivity Analysis. Meanwhile it introduces such factors as demand elasticity and market rate of certain product to improve the practicality of CVP method.