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REFINEMENTS IN THE ISMAIL‐LOUDERBACK STOCHASTIC CVP MODEL *
Author(s) -
Norland Robert E.
Publication year - 1980
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1980.tb01160.x
Subject(s) - profit (economics) , probability distribution , stochastic modelling , mathematical economics , mathematical optimization , expression (computer science) , zero (linguistics) , computer science , economics , mathematics , microeconomics , finance , statistics , linguistics , philosophy , programming language
This paper presents results concerning the Ismail‐Louderback stochastic cost‐volume‐profit model. For the case where demand is normally distributed, an analytic expression for the output that maximizes the probability of achieving specified profits is obtained and a new procedure for determining the output that maximizes the profits, given a target level of probability of their being achieved, is developed. If opportunity costs of lost sales are zero, then analytic expressions for both the above outputs are obtained for any demand distribution.