Pricing training and development programs using stochastic CVP analysis

James A. Yunker and Dale Schofield
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James A. Yunker: Professor of Economics, Western Illinois University, Macomb, IL 61455, USA, Postal: Professor of Economics, Western Illinois University, Macomb, IL 61455, USA
Dale Schofield: CMPD (College of Business), Western Illinois University, Macomb, IL 61455, USA, Postal: CMPD (College of Business), Western Illinois University, Macomb, IL 61455, USA

Managerial and Decision Economics, 2005, vol. 26, issue 3, 191-207

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.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:26:y:2005:i:3:p:191-207

DOI: 10.1002/mde.1204

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