Types of Financial Data That Would be Included and Excluded in Apple’s Differential Analysis
Specific Revenues And Costs Should Be Considered In An Evaluation To Drop Or Keep A Customer And Product Line
Apple has numerous ways to apply differential analysis to its operations, ranging from conducting research and development for new product lines to the manufacturing process of its products. By looking at Apple’s nature of business, the specific revenues and costs that should be considered would be:
- Sales revenue: as explained by Gordon (2022), differential analysis requires that we consider all revenue and cost differences (costs that differ from one alternative to another) when deciding between alternative courses of action.
- Production costs (fixed cost and variable cost)
- Opportunity costs: these are the lost benefits of choosing one alternative over another and must be considered when performing the differential analysis (Gordon, 2022).
Hence, the specific revenues and costs that should be excluded would be:
- Other products’ sales revenues or expenses: we don’t need to include these costs since we only want to analyze one particular product line.
- Sunk cost: costs incurred in the past that cannot be changed by future decisions are not differential costs because they cannot be changed by future decisions (Gordon, 2022).
- Allocated fixed cost: Fixed costs that cannot be directly assigned to a product are generally not differential costs (Gordon, 2022).
As for the costs or revenues for evaluating:
- Customer: Apple must consider revenue, cost of goods sold, fixed cost, and fixed cost differential when evaluating its current customers.
- Product line: To determine which iPhone series is profitable, Apple needs to compare the data to other series. Not only fixed costs but also R&D, warehousing, salaries, and opportunity cost.
Apple’s Sunk And Opportunity Costs
Sunk costs are those that have already been incurred and are non-recoverable (Tuovila, 2022) while opportunity cost is the potential benefits that a company loses by choosing one alternative over another (Fernando, 2022). As for Apple the example of their sunk cost is the cost they have spent on developing the Apple TV.
Should these costs be considered in differential analysis? Why or why not?
The sunk costs should not be considered in the differential analysis because they will remain the same regardless of the outcome of a decision. But we need to consider the opportunity cost because in the differential analysis we have to know the opportunity cost to guide us for more profitable decision-making.
Conclusion
Apple has to consider sales revenue, production costs, and opportunity costs in order to do the differential analysis. Also in order to evaluate customers and product lines, Apple has to consider revenue, cost of goods sold, fixed cost, the fixed cost differential, R&D, warehousing, salaries, and opportunity cost.
References
Fernando, J. (2022, June 7). Understanding Opportunity Cost. Investopedia. Retrieved July 10, 2022, from https://www.investopedia.com/terms/o/opportunitycost.asp
Gordon, J. (2022, April 7). Differential analysis (Accounting) — Explained. The Business Professor, LLC. Retrieved July 10, 2022, from https://thebusinessprofessor.com/en_US/accounting-taxation-and-reporting-managerial-amp-financial-accounting-amp-reporting/differential-analysis-accounting-explained
Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org/books/accounting-for-managers/index.html
Joe, A. (2014, March 7). Apple Inc. — Company information — Market business news. Market Business News. Retrieved July 10, 2022, from https://marketbusinessnews.com/apple-inc-company-information/14919/
Tuovila, A. (2022, March 28). Sunk Cost Definition. Investopedia. Retrieved July 10, 2022, from https://www.investopedia.com/terms/s/sunkcost.asp
Note:
This article is written based on University of The People Managerial Accounting (BUS 5110) written assignment by Fristy Tania in July 2022
