Assignment 1

Activity-based Costing (ABC) in Service Industries

Wal—Mart Stores, Inc

[Name of Instructor]

[Class]

Assignment 1

Activity-based Costing (ABC) in Service Industries

Wal—Mart Stores, Inc

Introduction

Wal-Mart stores (Wal-Mart) are the world's largest retailers. At the end of January 2008, when the company operated 971 discount stores, 2447 supercentres, 591 Sam's Clubs and 132 Neighborhood Markets in the United States. Wal-Mart also operates several international markets, but these are the United Kingdom, Canada, Japan, Mexico, Brazil, and China. The company sells a number of retail goods and services at low prices. This product range includes both national and private-brand manufacturers. These distribution centers primarily serve the operating segment called Wal-Mart Store. In addition, these centers are also the distribution of supplies from Sam Club perishable items, jewelry, tires, and the product returned.

In 2010, Wal-Mart consolidated its e-Commerce activities around the world in a Global e-Commerce Division. This division has three goals: 1) Develop and execute a global e-Commerce strategy; 2) Accelerate global online channel growth; and 3) Create technology platforms and applications for every Wal-Mart market. Wal-Mart offers e-Commerce sales through dedicated online platforms in seven countries, with the most significant being Walmart.com in the United States. ASDA.com, our U.K. grocery home shopping network, is now a meaningful business, serving 97 percent of all U.K. customers. The investments made in these platforms are helping to accelerate growth in other markets, including Brazil and China (www.walmart.com).

Activity Based Costing

Activity Based Costing (ABC) System serves as an alternate to the company's usual costing system. It provides manager with a helpful tool that aids in making strategic decisions and controls the fixed costs. ABC costing system is especially helpful for decision making that directly affects the capacity of production of a company. In traditional costing systems, the basic aim is to value the inventories and cost of goods sold in accordance with the GAPP (Generally Accepted Accounting Principles) whereas in ABC costing system there are two primary cost systems involved. These systems report accounting based data to both internal and external authorities. It is also used to determine the costs for product for special management reports. The method was founded in 1972 and is basically aimed at improving the traditional costing methods to provide better decision making alternatives to corporations.

Implementation of Activity Based Costing

The ABC system can be applied in any industry, whether manufacturing and services. The basic difference is that the "output" in a service industry is an intangible. The system ABC is more expensive to install and maintain than a traditional system, as the ABC extends to activities larger and more complex. From the point of view of behavior generated by the organization, the ABC can produce large rejection if it is a process supported from the leadership and opinion leaders of the company. 

Today companies, especially those with many products, large overhead costs and fierce competition, are adopting the Activity Based Costing and cost instead of assigning each category of expenditure tracking on an object of costing. The new situation reflects the understanding of key activities, costs, structure and strategy of an ...