Guillermo_Furniture_Store

The Guillermo Furniture Store Scenario Analysis Introduction Guillermo Navellez, of Sonora, Mexico, made high-end custom furniture for years in his home. Unfortunately for him in the 1990’s, a new competitor from overseas using a high-tech approach to furniture making entered the market and sold its product a “rock bottom” prices. Furthermore, his community expanded in popularity and population which ultimately drove up labor prices, which conversely shrunk Guillermo’s profits. With these two events, Guillermo had some tough decisions to make in order to save his business and continue to remain profitable as a furniture maker. (The Guillermo Furniture Store Scenario, 2009, website) How Guillermo uses Reports in Decision Making Both budgets and performance reports support planning and control. (Managerial Accounting, Chapter 1, page 13) Guillermo could use his projected budget as a guide to remain under expected costs. Whenever a company exceeds their projected variable costs, this usually means they are going to lose money over time. Conversely, if they practice remaining under budget without sacrificing the quality of their product, then they can increase profits and satisfy organizational objectives. As for the performance reports, Guillermo can examine where he needs to increase efficiency in order to remain competitive with his competition. This is an important because he can compare his actual costs to his projected budget to see if any variances are deviating from his original plans. With this information from both his projected budget and performance reports, Guillermo can become motivated to make decisions to stay within his budget and reach his objectives. How Ethics Influence Accounting Decisions In any business, it is extremely important to have high ethical standards in the workplace, especially when dealing with money. Guillermo could always “cook the books” and make his profits look better; however, this would inevitably hurt his business. Moreover, once his books were audited at the end of the year, these discrepancies would be discovered by the auditor. In Guillermo’s situation, he has some tough decisions to make: First, how can he compete with the first competitor using his current production methods and remain profitable. Secondly, should he consider establishing an alliance with the new competitor from Norway and become an outlet for their furniture sales in order to compete with the first competitor. Having the correct information on the balance sheets will influence his decision on what will be his best move. Having the wrong information could lead Guillermo to make the wrong decision and end up out of business. That’s why it is so important to do the right thing by reporting accurate financial information at all times. This will let Guillermo will know if his business is truly profitable or if he is losing money. What Accounting Information is most Relevant to Guillermo I feel the most relevant accounting information is the bottom line: Net Income. This will tell him whether or not his business is making or losing money. Due to the competition and the latest manufacturing trends, Guillermo has to upgrade his manufacturing processes because his competitor is making furniture more efficiently and cost effective to his production methods. Thus, the price for the same furniture is going down while Guillermo’s labor costs are still remaining high. Therefore, Guillermo should be concerned with the bottom line in order to decide if he is going to upgrade his production methods or join with the second competitor from Norway in order to compete in this ever growing market. Conclusion Guillermo has some tough decisions to make in order to stay in business and remain profitable. It is very important for him to remain ethically sound in reporting his accounting information so that he can make the right business decisions for his company. Reducing his fixed and variable manufacturing costs will make him competitive in the furniture market; however, this may sacrifice the quality of his furniture. Once Guillermo addresses these issues, he will be able to move his business in the right direction. References: 1. The Guillermo Furniture Store Scenario. (2009). Retrieved October 5, 2009, from University of Phoenix website, http://ecampus.phoenix.edu/classroom/ic/cwe/home.aspx 2. Horngren, C.T., G.L., Stratton, W.O. Burgstahler, D., & Schatzberg, J. (2008). Introduction to Managerial Accounting, (14th Ed.). Retrieved October 5, 2009, Chapter 1, page 13.