Guillermo_Furniture_Store_Scenerio

In business, budgets and performance reports are extremely important. A budget is “a quantitative expression of a plan of action and an aid to coordinating and implementing the plan”, (Horngren, 2008), and determines what moves can be made in business. Performance reports provide feedback from plans and can help determine where plans are ineffective and can be changed. Overall, budgets and performance reports work hand in hand because they help compare the actual amounts to the estimated amounts. Since competitors have entered the market in Sonora, Mexico, Guillermo’s Furniture Store has experienced a decrease in his business. The competitors came in and depleted his business by offering low prices and high tech production. Guillermo needs to evaluate his budget and performance reports to determine if he will be able to continue to exist among his competition. To continue the furniture store is a very important decision to make, and the budget and performance reports need to be considered in this decision. Guillermo’s budget is very important in the planning of his business. The budget is the basis for a business, and the budget will let Guillermo know if he is able to stand out against his competition. Once Guillermo developed his plan by analyzing the competition and the way their furniture is produced, he could use his performance reports to determine if his furniture business could continue to operate and be productive against the competition. He could also use his performance reports to correct any variances, or deviations from plans, which can be used to correct his budget. Ethics play an important role in any business, but it is especially important when dealing accounting decisions. Ethics are defined as “the field that deals with human conduct in relation to what is morally good and bad, right and wrong”, (Horngren, 2008). With Guillermo’s Furniture Store, his ethics can have great influence over his accounting decisions. Guillermo seems to be very conscious about his furniture and its quality, as well as the competition. Guillermo noticed that his competitions were coming into the market and consolidating, and he does not want to do the same. He also does not want to be acquired by those larger companies and have them penny pinch every little overhead cost. Guillermo can use the accounting information of the other companies to show how his company can offer better products, and will not mark up his prices. Ethically, it will be a good decision because he will be truthful with his customers, his investors, and himself. When comparing his business to his competitors, Guillermo found that he may be able to go from manufacturing to distribution by working with one of his competitors. Guillermo would be determining his prices for his work, and he could easily mark up his prices to make a higher profit. It seems as though Guillermo has a love for his work, and is really not trying to cheat his customers, but the price that he charges is definitely an ethical decision. Guillermo also determined that there may have been a less expensive way to coat his furniture. Initially, Guillermo created his own patented process, but found that he could buy a product that will do the exact same thing his patented product does. Guillermo can either continue to use his patented process and charge a higher price to cover his process, or buy the other product, which adds the same value to the furniture. If he uses the other product, it will most likely be less expensive than his patented product, which would lower his costs. He can make an ethical accounting decision to either continue to charge the higher price using the lower costing product or adjusting his prices to the lower cost. The most relevant accounting information for Guillermo to consider when making his decisions is his performance report. His performance report can be used to show the accuracy of his budget. It is important to know if his budget is correct because it will help to determine if his company is going to be able to last against his competitors. Guillermo will then be able to adjust his budget and focus on the areas that need to be corrected, and his business will be able to run more smoothly. To be successful in the new booming town of Sonora, Guillermo must analyze his budget and performance reports, and compare them to the competition that is entering the market. He also must make some ethical decisions to decide if he can be true to himself and his customers. If he makes good decisions, he can be successful against the competition and come out on top against his competition. References Horngren at el. (2008). Introduction to Management Accounting (14th ed.). New Jersey: Pearson-Prentice Hall. University of Phoenix. (2009). Scenerio: The Guillermo Furniture Store. Retrieved June 28, 2009, from University of Phoenix, Week One, rEsource. ACC/561- Introduction to Management Accounting.