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Pricing training and development programs using stochastic CVP analysis

Author

Listed:
  • James A. Yunker

    (Professor of Economics, Western Illinois University, Macomb, IL 61455, USA)

  • Dale Schofield

    (CMPD (College of Business), Western Illinois University, Macomb, IL 61455, USA)

Abstract

This paper sets forth, analyzes and applies a stochastic cost-volume-profit (CVP) model specifically geared toward the determination of enrollment fees for training and development (T+D) programs. It is a simpler model than many of those developed in the research literature, but it does incorporate one advanced component: an 'economic' demand function relating the expected sales level to price. Price is neither a constant nor a random variable in this model but rather the decision-maker's basic control variable. The simplicity of the model permits analytical solutions for five 'special prices': (1) the highest price which sets breakeven probability equal to a minimum acceptable level; (2) the price which maximizes expected profits; (3) the price which maximizes a Cobb-Douglas utility function based on expected profits and breakeven probability; (4) the price which maximizes breakeven probability; and (5) the lowest price which sets breakeven probability equal to a minimum acceptable level. The model is applied to data provided by the Center for Management and Professional Development at the authors' university. The results suggest that there could be a significant payoff to fine-tuning a T+D provider's pricing strategy using formal analysis. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • James A. Yunker & Dale Schofield, 2005. "Pricing training and development programs using stochastic CVP analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 191-207.
    • Handle: RePEc:wly:mgtdec:v:26:y:2005:i:3:p:191-207
    DOI: 10.1002/mde.1204
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    References listed on IDEAS

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    1. Kim, Sangphill & Abdolmohammadi, Mohammad J & Klein, Lawrence A, 1996. "CVP under Uncertainty and the Manager's Utility Function," Review of Quantitative Finance and Accounting, Springer, vol. 6(2), pages 133-147, March.
    2. Chan, Derek K & Wong, Kit Pong, 1999. "CVP under Uncertainty and the Manager's Utility Function Revisited," Review of Quantitative Finance and Accounting, Springer, vol. 12(2), pages 159-170, March.
    3. Chung, Kee H, 1990. "Inventory Decision under Demand Uncertainty: A Contingent Claims Approach," The Financial Review, Eastern Finance Association, vol. 25(4), pages 623-640, November.
    4. Kee H. Chung, 1990. "Output Decision Under Demand Uncertainty with Stochastic Production Function: A Contingent Claims Approach," Management Science, INFORMS, vol. 36(11), pages 1311-1328, November.
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