Pamela M. Schwer
Associate Professor, Graham School of Management, Saint Xavier University

John E. Eber, Ed.D.
Dean and Professor, Graham School of Management, Saint Xavier University

This paper describes an exercise that has been highly effective in teaching basic cost concepts and cost/volume /profit relationships.

The exercise has been highly effective in both a classroom and a corporate training environment. The example deals with planning and cost analysis for a wedding. While the focus is on cost/volume/profit relationships, social and cultural norms play a part in identifying and analyzing variables.

The fact that all age groups have experience with weddings helps engage participants and further conceptual understanding of the CVP issues.

Participants identify costs, cost drivers, and volume based cost behavior patterns. Fixed and variable revenues and the concept of relevant range are demonstrated in a very concrete manner.

The example can be expanded to include issues related to product mix and sensitivity analysis. Quantitative goals can be break even, loss limits, or target profits. The key to making this an excellent learning experience is that all of the information and assumptions come form the group and everyone gets involved. Qualitative goals are easily addressed as the discussion unfolds.

Too often students and corporate learners lose the point in CVP analysis because they are dealing with artificial information about “widgets”. Simplicity and reality are the keys to learning.

Download full paper in .doc format