Lawrence_Simulation

In the Guillermo Furniture Store Scenario, Guillermo is confronted with some extremely tough choices. Guillermo’s furniture store use to be the only furniture store in Sonora, Mexico, Guillermo now confronted with new competition from an overseas company and a national distributor setting up shop in Sonora. Larger companies like Wal-Mart, and companies of the same caliber are phasing out small companies almost daily because they are able to do it on a large scale and a much higher rate, still offering competitive pricing that intrigues the consumer. As a result of the new competition and larger companies taking up residence in Sonora, Guillermo finds costs on the rise and profits on the decline. Guillermo has three alternatives to his current business plan, they are: 1. Apply high-tech methods to the production cycle 2. Represent another company through a merger 3. Create a line of stain resistant coatings to add value to his furniture Three very valuable questions that will be examined throughout the paper: • How could Guillermo use budgets and performance reports in his decision making process' • How might ethics influence his accounting decisions' • What accounting information is most relevant for Guillermo to consider when making decisions' Management uses budgets as a planning and control tool to make better decisions about business. Budgets include both revenue and expenditures, setting the guidelines by which a company can measure its profit and loss. Guillermo can thereby use budgeting methods to compare the three alternative plans and examine each for the best course of action to take for his company. (Hongren, 2008) This type of analysis is known as an incremental analysis in which all aspects including the fact that all unavoidable costs remain constant regardless of the path the company takes. The other piece of the puzzle would be performance reports, which provide a means of comparing results of all plans showing the variations with each one and produce the best alternative Ethics have an influence on Guillermo’s decision making in that how he behaves in his personal life has a direct connection to his business life. Knowledge gained from the review of this scenario allows Guillermo options for the future of the furniture store. In review, Guillermo must decide between upgrading his business, going into a partnership with another company or being satisfied with selling his protective coating to other furniture builders. From the start of his business Guillermo has tried to give his customers the best product for their money. Guillermo had the opportunity on more than one occasion to overcharge customers for his product, however he has opted always to keep his costs low but the product of high quality standard. At this stage of the game the most important accounting influence for Guillermo to consider is profit and loss. Guillermo must look at all aspects of his choices, because he would need an exuberant amount of capital to invest in the technology that the overseas company currently uses enabling them to perform with less labor overhead due to all of the furniture being made through robotics on a 24-hour basis. The second and possibly best choice of the three would be to become a representative for the additional overseas company who needs an outlet of exportation into the United States. Guillermo would of course, have to take his company in a direction away from manufacturing into that of distributing. The final alternative would be to sell his specialized furniture coating, which up to this point has not been necessarily a selling point for his furniture. A final recommendation and conclusion to this scenario would be that with all the information obtained through budgets and performance reports, looking at the ethical aspects of things, keeping his customers happy and looking at the profit and loss possibilities, we see that now would be the time to create a partnership with the secondary overseas company and continue to watch the profits roll in until he is ready to retire and pass on his company to his family members. Reference: "Business and Accounting Ethics" written by Dr. K. T. Smith and Dr. L. Murphy Smith "Ethics Pay," Wall Street Journal, Sept. 29, 1987, p. 1 Introduction to Management Accounting, 14e, by Charles T. Horngren
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