Guillermo_Store_Scenario_1

Guillermo Store Scenario Hector Sierra University of Phoenix Guillermo's Furniture Store Scenario Guillermo's Furniture store is currently facing an unexpected increase in foreign competition which has put Guillermo in a tough position, forcing him to consider different alternatives for his business to survive. Guillermo has conducted research on his competitors’ strategies to stay competitive in the market. This synopsis will help identify three key factors which will help Guillermo implement the necessary changes to his business in order to stay competitive. The four key factors that Guillermo has to consider are budgets and performance reports, ethics in accounting decisions and relevant accounting information. Strategy The two basic types of decisions are planning and control. Horngren, et al., (2008) states that, “The management process is a series of activities in a cycle of planning and control.” Decision making is the purposeful choice of achieving an objective, and Guillermo Furniture will have to consider a few variables in order to achieve an objective. Variables such as budgets, performance reports, and ethics in accounting and relevant accounting information are all equally important in achieving an objective, which in this case would be to stay competitive without risking a large investment in unnecessary equipment or mergers and acquisitions. Factors in Decision Making Guillermo has to develop a new budget in order to figure out a feasible business decision. Budget and performance reports can be used by Guillermo Furniture in several effective ways. Guillermo can utilize labor hours and production values to assess expected profits if the company chooses to sell flame retardant stain or alternative coatings. Budgeting will also help Guillermo plan for product growth and improved marketing through revenue and advertising budgets. Budgets also help to coordinate and implement plans. Guillermo’s Budget information can also be used to determine if the company will be more profitable by becoming a representative for another manufacturer or even acquire another. Performance reports are also valuable pieces of information that provide figures for the options that Guillermo has. By utilizing the income information report, Guillermo Furniture has calculated the expected net income before taxes for the current, hi-tech and broker options. The graph below shows that the company will earn the highest net income before taxes if it chooses to convert production to automation. Ethics play a major role in everyday life the same as in business. The purpose of ethics in business is to direct business men and women to abide by a code of conduct that facilitates, if not encourages, public confidence in their products and services” (Smith & Smith, 2003, para.15). In regards to ethical decision making, Guillermo has to consider which option will increase profits as well as what is ethically right for the company. Converting to automation would definitely increase profits without a doubt; however, if the company decides to convert to automation then Guillermo will have to layoff employees due to the unrequited positions. Guillermo Furniture will face an issue with employees due to the unexpected layoffs. An unethical decision can cost Guillermo even more if employees are not laid off properly. Choosing to be a distributor for a foreign product can be an unethical decision in part because Guillermo is known for quality. Choosing to distribute foreign products might blemish the company’s reputation because of the lacking in quality that Guillermo has sworn by. Accounting information that is most relevant for Guillermo “is the predicted future cost and revenues that will differ among the alternatives” (Schatzberg et al, 2008, p. 198). The income information report suggests the use of the absorption approach. The absorption approach considers all direct and indirect manufacturing costs (Schatzberg et al, 2008). The distinctions between behaviors of variable and fixed costs are crucial for certain decisions; decisions usually affect fixed costs in a different way than they affect variable costs (Schatzberg et al, 2008). The relevant information that Guillermo should consider consists of net income before taxes and the cost of capital. The high tech option would increase overhead substantially but the company would obtain the highest net income before taxes making the company more profitable. By considering the facts and circumstances, Guillermo Furniture has a huge decision to make in order to stay competitive with the market. Guillermo has many alternatives to choose from in order to achieve his overall objective. However, Guillermo has to be cautious of what he decides to do because ethics have now come into play. Guillermo should definitely consider jumping on the technological wagon for the reason that Guillermo Furniture is known for quality. Acquisitions might boost sales; however, Guillermo is going to have to sacrifice in some way. References Burgstahler, D., Horngren, C.T., Schatzberg, J., Stratton, W.O., & Sundem, G.L., (2008). Introduction to Management Accounting (14th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. Smith, K.T. & Smith, L.M. (2003). Business and accounting ethics. Texas A&M University. Retrieved July 3, 2009 from http://acct.tamu.edu/smith/ethics/ethics.htm. University of Phoenix. (2009). Scenario: The Guillermo Furniture Store. Retrieved July 3, 2009 from University of Phoenix, Week One, ACC561.