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Alongside the numbers, what else should a differential analysis take into account?
AThe historical cost of assets already purchased
BThe depreciation policy applied to fixed assets
CThe allocation basis chosen for fixed overheads
DCustomer loyalty, supplier ties and staff morale
Answer & Solution
Correct answer: D. Customer loyalty, supplier ties and staff morale
1. Differential analysis is largely quantitative, comparing the benefits and costs of each option.
2. Qualitative factors sit outside those figures but still bear on the decision.
3. Customer loyalty, vendor relationships, employee morale, social responsibility and opportunity costs all belong here.
4. The financial comparison remains the critical starting point rather than the whole answer.
5. Historical cost is sunk, so it is excluded from the analysis altogether rather than added as a qualitative factor.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 9.7 Accept Business at Reduced Price_
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