Custom «Application of Activity Based Costing in Wal-Mart» Essay Paper Sample

Quite a number of huge businesses have bought and installed price optimization software that assists them to determine the price of their services and products, and calculates the most favorable prices to charge clients and customers. Currently, this software is being considered by small retail business as a support in competing with large competitors. Robert W. Scroggins, a principal in RWSMC, the Dallas consulting firm for instance said that small and average businesses can attain similar benefits of price optimization software by applying activity-based costing (ABC).

Activity Based Costing refers to the costing technique that was created in the 1980s to assist huge industrial firms to perk up their product costing and business procedures, permitting them to compete favorably against their lower-priced competitors. Activity Based Costing includes analyzing the events and procedures that are needed so as to complete firm’s objectives and then assigning supporting overhead costs to those goals in a balanced manner, permitting you to calculate the actual cost of producing, delivering and selling products and services.

An ABC analysis enables us to prepare a recipe or bill of materials for goods and services of the client so that we can observe their revenue and costs by service or product, client or customer, and the degree of support that is needed. Twenty percent of clients that are accountable for eighty percent of nearly all businesses’ profits can be identified by ABC. The entire price optimization information that is needed by many businesses at a reasonable price and in absence of implementation problems of price optimization software is provided by ABC. Scroggins asserts that his company keeps costs down for an ABC analysis for small to average businesses through application of Excel spreadsheets other than price optimization software.

It is therefore evident that ABC is one of the most significant factors in business today. This is due to the fact that it is applied by small, middle-sized and large business firms. However one of the largest firms that have incorporated use of ABC is Wal-Mart. Wal-Mart Stores Inc. operates retail stores in a diversity of techniques across the world. It operates via three main channels including Wal-Mart Stores, International and Sam’s Club. Super Centers, reduction stores, and neighborhood markets in the United States in addition to walmart.com are the main channels of the Wal-Mart stores. Common merchandise such as materials and notions, domestics, stationary and boos, clothing, hardware, shoes, electronic devices, house-wares, automotive supplies, home furnishings, among others are tendered by the channels.

Groceries and even financial services and products are also offered in its stores. Warehouse membership clubs in the United States as well as samsclub.com are the constituents of the Sam’s Club channel. This channel is mainly made up of bulk grocery items, hard-goods, selected private-label items and soft-goods. The international channels consist of varied arrangements of retail eateries and stores such as Sam’s Club, concession stores and super-centers that operate across the world.

Therefore, Wal-Mart store and Sam’s Club are the two services of Wal-Mart organization that are supposed to use ABC. This is due to the fact that Wal-Mart stores have got a wide variety of goods that are supposed to be sold, supplied and delivered to many customers across the world. Thus, in order to know prices of other stores in the markets and ensuring that Wal-Mart stores don’t sell their goods at low price or extremely high price, the stores need application of Activity Based Costing. ABC will enable them to come up with more accurate costing of goods or services, SKUs, customers and distribution channels. It will also help to reduce cases of theft among employees and customers since everything will be distributed and sold through certain procedure.

Since Wal-Mart stores are one of the world’s largest stores, they need accurate and fair pricing, a fact that is offered by ABC thus making it easily applicable in this organization. ABC will also assist Wal-Mart stores and Sam’s Club to perk up their products costing and business procedures, thus enabling them to compete favorably against their lower priced competitors.

Groceries and warehouse membership clubs are the cost driver for the two activities above- Wal-Mart Stores and Sam’s Club. Groceries and warehouse membership particularly in America has got high ability of resulting to changes of costs of the two services. For instance, groceries and warehouse membership have led to reduction of amount of money spent by Wal-Mart in the delivering goods and services to the customers following adoption of Activity Based Costing when compared to what was spent before adoption of this technique. With the adoption of these activities, delivery cost dropped from $34000 to $19500 which was nearly 50% decrease. This was due to the fact that unlike initially where costs were not regulated properly with some goods being prone to theft by both employees and clients and also facing stiff competition from low and average-based business, ABC through warehouse membership and groceries enabled Wal-Mart stores and Sam’s Club to reduce costs immensely with customers buying goods under close supervision than before.

In general, ABC is one of the factors that have seen Wal-Mart Stores and Sam’s Club developing and improving its modes of operation. It has eased the rate at which services are offered in these places as good relationship between customers and Wal-Mart works is enhanced. It has also enabled it to compete favorably with both small, middle-sized and large businesses organizations and firms. This is because Wal-Mart stores and Sam’s Club are now able to controlling its costs effectively with the assistance of Activity Based Costing that has been incorporated in the production and selling of goods and services offered by this organization- Wal-Mart across the world.