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Comparison between two retail companies picked are Walmart and Costco

The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below: WALMART https://www.nasdaq.com/symbol/ wmt/financials?query=income- statement COSTCO https://www.nasdaq.com/symbol/ cost/financials?query=income- statement Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers. Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization. Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is c...
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. Describe Differential analysis to drop/keep customers


This is the process of the analysis of all revenues and costs in both situations which are keeping all the customers versus dropping the unprofitable customers. If the results indicate that the profit is made by dropping unprofitable customer so the decision will be taken easily.

2.    Describe Differential analysis regarding product line offerings

Here is another application of the differential analysis. It is the differentiation between offering different lines of products. We analyze the cost and the predicted revenues of each product line and compare the results to each other. The best profitable line is chosen according to the differential analysis.

3.    Describe Differential analysis regarding Make-or-Buy decisions

This is a very important application for differential analysis at the business of production plants. Some suppliers offer products at lower prices than the production total cost of some production plants. The management needs to consider the fixed overhead cost of their business which is not eliminated by taking the buy decision. The differential analysis, in this case, is comparing the production costs to the supplier price plus the fixed overhead cost of this business.

4.    Discuss the role qualitative information may have in differential analysis

The differential analysis is dealing with the quantitative information such as revenues, costs (fixed and variable) and profits. There is other information which should be taken into consideration. It is the qualitative information. The qualitative information may affect the cost and profit of the business such as the moral of the employees, the stability of the outsourcing producer and the quality of the product which may affect the sales revenue if it is lowered.

5.    Discuss sunk and opportunity costs, why must managers consider these things?

“The sunk cost is the cost incurred in the past and cannot be changed in the future.”  (Kurt Heisinger & Joe Ben Hoyle, 2012).

“The opportunity cost is the benefit foregone when one alternative is selected over another.” (Kurt Heisinger & Joe Ben Hoyle, 2012)

Both kinds of costs must be considered when taking a managerial decision. They directly affect the cost and profitability of any alternative being differentially analyzed.

References: -

Kurt Heisinger & Joe Ben Hoyle. (2012). How Are Relevant Revenues and Costs Used to Make Decisions? In K. H. Hoyle, Accounting For Managers (p. 485:582). California: NA.

 

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