Guillermo_Furniture_Concepts

Running head: GUILLERMO FURNITURE CONCEPTS Guillermo Furniture Concepts University of Phoenix Guillermo Furniture Concepts Guillermo Navallez is the owner operator of a furniture company in Sonora, Mexico. His sales and profit have been very good for the company over the past 15 to 20 years. The labor is inexpensive and he has a good resource for the timber and the raw materials for his product. Recently, he has seen a down turn in the sales due to some business factors. A new competitor from overseas entered the market and they are using a high-tech approach which allows them to produce at a higher rate with a lower cost. Guillermo needs to decide what is best for his business financially by looking the financial data and different business aspects such as technology, diversification and competition. Guillermo Furniture needs to make decisions on whether to keep the business practices the way they are currently or to upgrade equipment to keep up with competition. Being able to forecast future outcomes can help determine if the risk is high or low compared to the outcome. According to the income information data it represents the current total income before taxes which is $42,577, high-tech for $195,564 and Broker $50,955 (University of Phoenix, 2009). The high-tech option looks the best from the two additional options since the return on investment is the highest. There are some drawbacks to upgrading the equipment since it can require additional expenses. The purchase price of the computer controlled laser needs to be addressed along with the additional cost that will be incurred to use the equipment. The start-up cost is also another expense that could be a drawback. The positive outcome from replacing with the laser is that it would eliminate some of the employee expense since fewer employees would be required to operate the factory and most of the work could be done with just the machine. Monitoring financial statements such as the budget is necessary when researching about upgrading or making major changes to a company or the structure. The budget can show how many units were budgeted; the total dollar budgeted on the actual units. If the budget is lower than expected it can incur multiple problems. Allocation of additional staff than required would cause an additional expense that was not needed or raw materials could have been bought in advance and if lack of storage is an issue, the materials could get damaged. Another financial statement is the Assets, Liabilities and Owner's Equity. This statement shows the amount of cash on hand based on the inventory or accounts receivable. It also shows the expenses such as building, equipment, wages, accounts payable, and common stock. Diversification can help determine which options are best when looking at upgrading or replacing parts of a process. Diversification can be stated as "eggs in one basket" (Emery, Douglas R., Finnerty, John D., and Stowe, John. D., 2007). Risks from replacing the employees with a machine can impose problems when something occurs to interrupt the machine. Human intervention will be required to repair the machine and when the machine is not working, there is no output. When humans are producing a product by hand it gives the product a personal touch and allows for more variation of product types without reconfiguring a machine. Machines can help with total number production since a machine can produce more with little effort compared to a human. If product diversity would be possible it could produce a unique product and Guillermo would have market over another company. Looking at the various financial records can help determine if an upgrade is possible due to the amount of expense. Considering all options is necessary when trying to determine which products or services to start offering or discontinuing to the customers. Keeping in mind that diversification is necessary in order to make a unique product for the customer. References Emery, Douglas R., Finnerty, John D., and Stowe, John. D. (2007). Corporate Financial Management (3rd ed.). New Jersey: Pearson Education, Inc. University of Phoenix. (2009). Guillermo Furniture Store Scenario. Retrieved January 27, 2010, from University of Phoenix Week one. FIN/571 Corporate Finance Course Web site.