Guillermo_Furniture_Store

Guillermo Furniture Store Concepts Gina Godazchian University of Phoenix FIN 571 September, 1 2010 The Guillermo furniture store in Sonora, Mexico is well-known for its handcrafted products at reasonable prices. Guillermo Navallez, owner of the company has been offering a wide variety of products to his customers and the manufacturer has maintained high income levels for the time existing. Fortunately, the cost of labor was fairly inexpensive allowing him to price his handcrafted products in a way that his total profit was considerably high. Conditions changed for Guillermo manufacturing after a new competitor established its operations in the furniture market as well. This represented a large threat to Guillermo’s business, being unable to compete with his competitor’s lower prices and new technology that allowed them to manufacture more pieces of furniture at a lower cost and better quality using a foreign high technology. The cost of labor became an issue that Guillermo had to face as well, when Sonora with its beautiful weather, scenery, in between other facts that made the city a desirable place to live for every family. This factor increased the cost of labor and affecting the company’s profit. This paper will discuss the financial concepts found in Guillermo furniture store’s case and how they relate to the company’s current situation. Possible Solutions and advantages Guillermo Navallez had to choose between three options that could bring profit to the company and may increase the company’s production capacity. The first given option proposed that Guillermo could purchase the new technology that his competitors were using. This was a considerably expensive decision to make taking into account the current financial situation of the company. The second option proposed a change of the company’s primary focus from a manufacturing company to a distributing company, serving as a representative of a competitor located in Norway that was looking for ways to distribute its products in North America. The third possible option, considered that Guillermo furniture store should continue developing business with the same approach that the company has been operating on but lowering the cost of production. Lowering cost of production but keeping everything else similar to current operations appears to be the most beneficial for the furniture store. This alternative offers a more realistic solution to the company’s predicament considering that the two first options represent a higher investment that would require financial assistance which will require the company to be creditworthy and with low debt to income ratios to qualify for high levels of financial aid. Control Systems Control systems are also important financial concepts that will help Guillermo Navallez in his decision making. Control systems are used by management to assist in the decision making process. The control system uses techniques to gather relevant information that is needed to lead up to optimal decisions; it also helps companies forecast what managers must achieve, key success factors, to push an organization towards its goals and helps with forecasting and budgeting (Horngren, 2008). When managers have alternative goals, alternative ways, then opportunity costs come into effect and management control systems can assist managers in choosing the better of the alternatives. The person who designs the control system must measure the costs and benefits of the alternatives. Some goals are focused on the guest or customers and exceeding expectations. These can be measured by satisfaction index, customer repeats, etc. Other goals are more geared toward maximizing revenue or focusing on innovation (Horngren, 2008). As a conclusion and applying financial concepts found in this case, although the first two options were aggressively pointing to sales increase, implementing them could hit the company into high finance costs and excessive debt. The third option according to the cost-benefit analysis provides a more secure financial situation to the company, with lower costs and with the same or higher income levels. The proposal is based on the capacity of the company to improve its current operating system and methods, without incurring in more expenses. . References Horngren, C. T. (2008). Introduction to Management Accounting (14th ed.). : Pearson Education, Inc. The Guillermo furniture store scenario, 2010. Retrieved from University of Phoenix website on September 01, 2010.