COST ACCOUNTING ANALYSIS ON WALMART

Cost Accounting Analysis on Walmart



Wal-Mart

Introduction to the company and its history

The company was founded by Sam Walton in 1962, incorporated on October 31, 1969, and publicly traded on the New York Stock Exchange in 1972. Wal-Mart, headquartered in Bentonville, Arkansas, is the largest majority private employer Walmart is also the largest grocery retailer in the United States. In 2009, it generated 51% of its US$258 billion sales in the U.S. from grocery business. It also owns and operates the Sam's Club retail warehouses in North America.

Walmart has 8,500 stores in 15 countries, under 55 different names. The company operates under its own name in the United States, including the 50 states. It also operates under its own name in Puerto Rico. It operates in Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price. It has wholly owned operations in Argentina, Brazil, and Canada. Walmart's investments outside North America have had mixed results: its operations in the United Kingdom, South America and China are highly successful, while it was forced to pull out of Germany and South Korea when ventures there were unsuccessful.

Activity based Costing in Wal-Mart

Efficiency is a key factor in maintaining Wal-Mart's low-price leadership among retailers. Their margins can be far lower than other retailers' because they have such an efficient supply chain. Turnabout is fair play. With Bentonville, Arkansas-based Wal- Mart Stores Inc. petitioning the Federal Deposit Insurance Corporation (FDIC) to get into the banking business, it's only fair that banks take a few lessons from the world's largest retailer as they seek to manage costs and attract business in today's mortgage lending marketplace. Wal-Mart became the “best supply-chain operator of all time” by following two fundamental strategies. First, it leverages its Scale in multiple ways to create operational efficiencies that drive significant competitive advantage. Second, and less obviously, it uses its Scale to create additional competitive advantage through best execution and supply-chain investments. The first factor is the kind of pure power play that banks understand well. Scale leads to bigger stores that have more products and thus become more of a shopping destination—more akin to a mall than a store that offers a narrower, more focused selection (Thomas, 2008).

Wal-Mart's overhead costs are distributed across a bigger footprint, allowing it to price more aggressively while maintaining good net margins. Scale gives a company a negotiating advantage with suppliers, which supports aggressive pricing strategies. Wal-Mart's leverage creates a snowball effect in which increasing purchase volume leads to more selection and lower prices for customers, leading to more purchase volume. In the lending industry, scale allows for more sales channels (loan officers, call center, wholesale, correspondent, joint ventures and so on) and a greater variety of product offerings (prime, alternative-A, subprime, home-equity lines of credit, construction, etc.). Large lenders are able to distribute fixed investment costs over larger transaction volumes, and, in theory, scale should also drive operational cost ...