Wal-Mart and Target, Essay Example

Target and Wal-Mart Variable Expenses

Target and Wal-Mart are two of the most predominately retail figures for consumer goods in the United States. In order to stay at this level it requires the leaders of these corporations to be able to pay their expenses, both fixed and variable without incidence. The variable expenses are dependent upon the amount of business the corporations do in sales.

A number of Wal-Mart’s variable expenses are contained under the heading of Cost of Sales on their financial statements (Wal-Mart, 2010). Wal-Mart defines their cost of sales as actual product costs, cost of transportation to the Company’s warehouses, stores and clubs from suppliers, the costs of transportation from the Company’s warehouses to the stores and clubs and the warehouse costs for Sam’s club (Wal-Mart, 2009). In Wal-Mart’s last three fiscal periods, 2007, 2008 and 2009, the costs of sales have been$ 263,979, $265,350 and $306,158 million respectively.

The Wal-Mart 2009 Annual Report and earlier years did not clearly define which of the variable expenses were the highest for the last three fiscal periods. On Wal-Mart’s Consolidated Statements of Income, the amount of revenue recorded for Net Sales, Memberships and Other Income totaled $348,368 million for 2007, $378,476 million for 2008 and $405,607 million for 2009. The amount of variable expenses to revenues for all three fiscal periods remained consistent.

The effects the costs of sales had on Wal-Mart’s margin and profit margin contributed to the company increasing Net Sales at 8.6% for 2008 and 7.2% for 2009 (Wal-Mart, 2010). The cost of sales allowed Wal-Mart to increase its sales in the store and gain acquisitions. The gross profit margin also had positive outcomes as a result of increasing the costs of sales. The gross profit margin percentage was 23.4%, 23.5% and 23.7% for 2007, 2008 and 2009 respectively (Wal-Mart, 2010).

Target also records its variable expenses using the Cost of Sales title on its Financial Summary. Target defines their cost of sales as costs of moving merchandise to stores, distribution centers and between the distribution center and stores, vendor income that has not been reimbursed, incremental and identifiable costs, inventory shrink, markdowns, outbound shipping and handling expenses associated with sales to customers, terms cash discount and distribution center costs that includes salaries and benefits (Target, 2009). The cost of sales for 2006, 2007 and 2008 were $40,366 million, $$42,929 million and $44,157 million respectively.

Like Wal-Mart, Target’s Annual Report for 2006 through 2008 did not explain which variable cost was the highest during these time frames. Target recorded total revenue for 2006 as $59,490 million, for 2007 as $ 63,367 million and $64,948 million for 2008 (Target, 2009). The effects of the increase in cost of sales for Target during these three fiscal years allowed Target to have a positive percentage of change as 2.3% and 6.2% for 2007 to 2008 and 2006 to 2007 (Target, 2009). Target also had positive results for the gross margin rate as described in their Annual Report of 30.3% in 2006, 30.2% in 2007 and 29.8% in 2008.

Conclusion

A company has variable and fixed to consider each year when they decide how to operate the business in order to produce positive results. Because fixed costs are fixed the corporations adjust the variable expenses, cost of sales for Target and Wal-Mart, to increase revenue from the prior year. Wal-Mart and Target are two retail giants that have done good jobs at keeping an eye on their variable expense therefore remain in positive percentages for net sales revenue.

References

Target Corporation 2008 Annual Report, (2009). Retrieved April 1, 2010 from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTI1MnxDaGlsZElEPS0xfFR5cGU9Mw==&t=1

Wal-Mart Stores 2009 Annual Report, (2010). Retrieved April 1, 2010 from http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-reportsannual