Introduction/Discussion Task:

Often, business decisions involve choosing between alternative courses of action, and companies tend to want to find the alternative that offers the highest revenue or the most significant reduction in costs. Non-routine decisions use differential analysis. These include make-or-buy choices, whether to retain or drop a product line, or even if a customer should be retained or dropped. In using differential analysis, common revenues and costs are factored out of the assessment, thereby focusing on revenue and cost information that is specific to a given product, customer, or another point to be analyzed. Use the basic knowledge acquired from differential analysis to respond to the following discussion task:

Continuing with the company selected in Unit 2 (ikea), think about the types of financial data that would be included and excluded in differential analysis. Propose which specific revenues and costs should be considered in an evaluation to drop or keep a:

• Customer
• Product line

In addition, explain sunk and opportunity costs as they relate to your selected company. Should these costs be considered in differential analysis? Why or why not?

ikea