Here the two main questions and pieces of information that need to be considered are a) the location of the stores and the relative distance from the competitors and b) the Sales potential for the stores and the estimated revenue that the company might expect from the stores. Both these have a major impact on the overall profitability of the company.
The irrelevant information for the company includes a) the sales for the US branch of the company and b) the sales forecast for Wal Mart international. Both these pieces of information do not have an impact on the company or the profitability of the company and hence can be ignored while the decision making process.
Using the contribution margin for each of the stores will permit Wal Mart to accurately identify the most profitable locations. The first step to be adopted here will be to finalise the major stores, which are expected to grow and develop to achieve high market shares, following which it is essential for the company to detail the additional costs that relate to the smaller stores. Also the marginal fixed overheads can also be used to do so. The use of marginal costs of the additional stores can be obtained using the above information.
Using the contribution margin method proves to be very effective and impactful on the businesses as the full cost and tradition methods of costing are not valid in the present times and hence the demand for the products is high as well. Also, this will provide information to the management which will help make more informed decisions for the additional store. Also this will allow gain a clear picture of the benefits that the additional store can provide and will also help in better estimation of the profitability of the stores as well. However, it is essential to keep in mind that although the contribution margin analysis is a simple process, the efforts to involved in finding the information for the analysis if quite tedious. Also the costs involved for the