Financial_Statement_and_Cash_Accrual_Analysis_Paper

Guillermo Furniture Store Meoshe Curtis ACC 561 July 19, 2010 Instructor: Prof. Cathleen Davis Guillermo Furniture Store Guillermo, a renowned Mexican entrepreneur found himself like most ordinary business persons would from time to time, facing a crisis as economic conditions began to alter the market for his products. Prior to the 1990s his business experienced success because of the lack of competition. However, in the early 1990s the market for improved furniture using high-tech equipment forced Guillermo to make some decisions concerning the furniture store. This paper will therefore seek to; address some of the ways in which Guillermo can use budgets and performances reports to make effective decisions; demonstrate how ethics can influence accounting decision-making; and make references to relevant information Guillermo would need to consider when making decisions concerning for the company. Budgets and performance reports would be a very vital tool for Guillermo to use in the process of deciding exactly what to do after observing a drastic decrease in the company’s profit margin. Siegel and Yacht describe the process of using budgets and performance reports as an “aspect of personal financial planning, a tool to make better financial decisions…It puts your current situation and your choices into a larger context, giving you a better way to think about where you are, where you’d like to be, and how to go from here to there.” A proper analysis of the situation would allow Guillermo to examine the opportunity costs he may face if he were to use his facilities to explore other products or outsource the business to a larger firm. Guillermo wanted to remain independent of the larger companies that might affect the amount of time spent with family members. Guillermo considered using high-tech equipments that were being used by the other larger competitors. The reports indicated that the use of high-tech equipments served to minimize production time and increased profit revenue for the larger companies. Instead of outsourcing to larger firms, Guillermo made a qualitative decision to become a distributor for a larger firm in which the original materials could be used to provide alternative choices for consumers. This new design strategy would provide Guillermo with a competitive edge over the other larger competitors. Understanding budgets and performances provided some insight for Guillermo to revive the economic status of the furniture store and remain an independent entrepreneur. Guillermo needs to exercise basic ethical behavior as an accountant while making adjustments to the business in hard economic times. Public companies provide financial reports annually to government agencies. The reports usually follow standardized generally accepted accounting principles (GAAP). Guillermo must allow attributes of honesty to prevail when preparing the GAAP and other governmental accounting records. The level of integrity practiced in previous years should influence Guillermo to complete reports that are accurate and not misleading to the public. Two ethical processes Guillermo might want to consider are total quality management (TQM) and Six Stigma. TQM would allow Guillermo to minimize cost by maximizing quality. Six Stigma, on the other hand, would allow Guillermo to engage in a process-improvement evaluative exercise designed to reduce cost by improving the quality of the product. An analysis of the latter proceedings would Guillermo the opportunity to, “bring about increased productivity and performance” (Soltani, Liao, Singh, and Wang, 2010, p. 674). Ethical practices will definitely play an important role in ensuring that customers are aware of the initial manufacturers of the products on sale. Guillermo also has an ethical responsibility to provide customers with information concerning the use of a flame-retardant or stain resistant method to reflect the traditional value of the products. After carefully examination and conducting research in the market, Guillermo must make some hard decisions concerning the business. First, consideration must be given to the relevance and accuracy of information gained to determine two or more courses of alternative action that can be taken. The alternative course of action taken would be feasible for Guillermo if the “Predicted future costs and revenues …differ among the alternatives’’ (Horngren et al, 2008, p. 198). Second, Guillermo might want to explore the use of the absorption approach that takes into account, “All indirect manufacturing costs (both variable and fixed) to be product (inventoriable) costs that become an expense in the form of manufacturing cost of goods sold only as sales occur (or the contribution approach that), emphasizes the distinction between the variable and fixed costs for the purpose of better decision making” (Horngren et al, 2008, p. 201-2). Guillermo’s decision-making skills are critical for survival of the furniture store during a time of crisis. Research on good business practices and accurate reports would also be vital in determining cost-pricing strategies for the new products. References Horngren, C.T., Sundem, G.L., Sratton, W. O., Burgstahler, Schatzberg, J. (2008). Introduction to management accounting. 14ed. Pearson Eductaion, Inc. Prentice-Hall. Siegel, R. Yacht, C. Budgets, financial statements, & final decisions. Retrieved from www.web-books.com/elibrary/NC/BO/B65/29MB65.html Soltani, E., Liao, y., Singh, A., Wang, W. (2010). Total quality management. Managing Service quality: The managaers’ orientations and their consequences – case study Evidence of current practice. Vol. 21, no.6, June 2010, 673-685, Taylor & Francis, Retrieved from UOP online library EBSCOhost July 19, 2010. UOP resource: Guillermo Furniture Store Scenario