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It is possible to say that Sam Walton relied on the principles and concepts of managerial accounting to improve the decision-making and planning in his company. First, it should be noted that he focused on such an issue as manufacturing overhead or the costs that are not related to labor expenses or procurement of materials. For example, he paid close attention to the cost of storing and transporting goods to various locations (Walton, 1993, p. 308). In the beginning, he reduced the cost of procurement by 5 percent (Walton, 1993, p. 308). By identifying the most important overhead expenses, he was able to cut operational costs significantly. Therefore, one can argue that managerial accounting helped Sam Walton to identify the inefficiencies within his company.
Apart from that, Sam Walton paid much attention to the direct labor or the employees who were directly involved in the sale of goods and customer service (Walton, 1993). In particular, he attempted to determine the optimal number of employees who could successfully meet the needs of customers (Walton, 1993). This strategy helped him decrease the operational expenses of Walmart. This is one of the reasons why this corporation achieved financial growth and this goal with achieved with the help of managerial accounting.
Additionally, managerial accounting was important for Sam Walton because it enabled him to optimize the cost of direct and indirect materials. For example, by relying on accounting systems, the management of Walmart was able to identify the most effective suppliers that could become long-term partners of the company. This issue was important when the management had to decide whether a particular product had to be purchased from foreign or domestic suppliers (Walton, 1993, p. 308). This strategy enabled the management to extend the retail chain of Walmart across the United States.
Apart from, that Sam Walton used the principles of managerial accounting to reduce the variable costs of the company. In this context, variable costs can be described as those expenses that tend to increase when the sales rates of the company rise (Garrison & Brewer, 2012). They are directly related to the financial performance of the firm. If one speaks about Walmart, the variable costs are mostly related to the procurement of products (Weygandt, Kimmel & Kieso, 2009).
It should be taken into consideration that these costs can become very significant provided that the management does not examine accounting data thoroughly. This is why the management of Walmart used accounting systems to eliminate inefficiencies that were mostly related to the supply chain. This is why Sam Walton closely monitored the supply costs, and he tried to elaborate on the procurement methods adopted in Walmart.
In turn, fixed costs were also critical for Sam Walton. In this case, much attention should be paid to such aspects as labor costs, rent, or the construction of stores (Weygandt, Kimmel & Kieso, 2009). It should be kept in mind that fixed costs are not related to the financial performance of the organization. Sam Walton paid much attention to the cost of renting warehouses (Walton, 1993, p. 136). Overall, these examples suggest that managerial accounting is of great importance to Sam Walton since it helped him to increase the effectiveness of his supply chain and transform into a global retailer that successfully withstands price competition with other firms. These cases indicate that managerial accounting was critical for Sam Walton whose enterprise grew because it eradicated a significant part of its costs.
Reference List
Garrison, R., & Brewer, E. (2012). Managerial Accounting. New York: McGraw-Hill Higher Education.
Walton, S. (1993). Sam Walton: Made In America. Boston: Bantam.
Weygandt, J., Kimmel, P., & Kieso, D. (2009). Managerial Accounting: Tools for Business Decision Making. New York: John Wiley & Sons.
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