Effect of Cost Volume Profit Analysis on the Performance of Commercial Firms in Nigeria

Abstract

This research investigated the effect of Cost Volume Profit (CVP) analysis on the profitability of commercial firms in Nigeria, adopting an ex post facto research design and applying purposive sampling to select six listed manufacturing firms from the Nigerian Exchange Group (NGX) covering the period 2018 to 2023. The study specifically aimed to determine the effect of cost structure (COST), sales volume (SALES), and pricing decisions (PRICE) on the profitability of firms, making use of Descriptive Statistics, the Redundant Fixed Effect Test, the Hausman Test, and the Fixed Effect Model (FEM). Additional post analysis tests, including the Histogram Normality Test, the Correlogram Test, and the Cross Section Dependency Test, were carried out to guarantee the robustness and reliability of the findings. The findings reveal that cost structure has a positive but statistically insignificant effect on profitability; sales volume exhibits a negative but insignificant effect, indicating that higher sales do not necessarily translate into greater profitability, possibly due to rising operational costs. Similarly, pricing decisions show a negative and insignificant impact, highlighting the need for strategic pricing models that align with market demand and competitive positioning. The study concludes that CVP analysis is a critical financial tool, but its impact on firm profitability is not direct or significant in isolation. Based on these findings, the study recommends that firms implement strategic cost control measures by optimizing production processes and adopting technology-driven cost management. Additionally, firms should enhance operational efficiency and market expansion strategies rather than relying solely on increased sales volume. Finally, firms should adopt data-driven pricing strategies, including value-based pricing and market segmentation, to ensure profitability without negatively affecting consumer demand.