Week_One,_Acc_561_Guillermo_Furniture_Store

Introduction Guillermo’s Furniture Store is a manufacturing company in Sonora, Mexico. Guillermo Navallez has been in the area for years and built the company into the area’s largest furniture manufacturing company. The business has been very successful, offering quality handcrafted products at a premium price. The location is perfect as it offers inexpensive labor, affordable housing and ideal weather with an abundance of timber. Guillermo’s has faced few competitors, until the 1990s when an overseas distributor entered the market and one of the largest retailers in the nation located their headquarters nearby. These factors and others combined to result in an increase in labor costs and reduced revenue for Guillermo (Guillermo, 2010). Possible Business Alternatives After completing research, Guillermo determines there are three business alternatives to consider (Guillermo, 2010): • Use of high-tech methods • Create a stain resistant coating, adding to the furniture’s value • Become a distributor Numerous variables will affect bottom line and by using the proper tools, a more informed decision will be made. Use of Budgets and Performance Reports in Decision Making Successful planning for a small business when facing stiff competition should include good decisions and great information. Key factors in determining financial differences between the alternatives are to identify the differential costs and revenues (Horngren, Sundem, Stratton, Burgstahler and Schatzberg, 2008). Deciding on the future goals of the business is vitally important. Development of a plan will support reaching the identified goals. A budget is a “quantitative expression of a plan of action and an aid to coordinating and implementing the plan” (Horngren, et al, 2008, p. 13) and a performance report provides feedback by comparing the plan with the actual results and highlighting any variances that may have taken place (Horngren, et al. 2008). One major area of concern facing Guillermo is the increasing labor costs. By comparing previous costs and revenue figures from performance reports, Guillermo has a foundation to begin supporting the business decision. The development of various forecasts to determine the correct amount of cash flow, inventory, and overhead will help to make an informed decision. Forecasting is an essential tool every company should use. This tool is financial planning. It helps to determine deadlines, break-even points and several pieces of important financial information. Ethics in Accounting Decisions Ethical actions and decisions are vitally important to a business’s success. Guillermo must choose a future for his business and in making this decision, consider what is ethically right for the company. According to Cowton, “ethics is, or should be, an everyday feature of professional life” (2009). Automation will lead to layoffs. This decision will increase profit but leave numerous individuals unemployed. Becoming a distributor will end in promotion of foreign inferior products. Promoting these products may hurt sales of his quality products. Ethical decisions must be made by the accounting divisions to accurately gauge the businesses financial health. To gauge decisions on just numbers is not smart business. According to U.S. Legal Definitions, the “code of ethics is a set of principles of conduct within an organization that guide decision making and behavior” (2010). This code of ethics provides a guideline to support those who make decisions regarding their work. Professional integrity is a cornerstone to success of the business and for the employee’s credibility. Relevant Accounting Information The relevant information that will be most helpful to Guillermo is the “predicted future differences between alternatives” (Horngren et al, 2010, p. 199). This information; net income before taxes and capital costs, can be provided from performance reports. Variable and fixed costs should be considered also. The various options will play out differently when applied to possible futures of the business and each must carefully detail the costs and possible revenue prior to making a sound business decisions. Conclusion After reviewing the financial reports and various alternatives, Guillermo could affect changes to his business practices to recoup or limit his losses, depending upon the business choices that are made. Guillermo needs to concentrate on the facts and not be afraid to take risks. When Guillermo concentrates on the facts and analyzes forecasts, he can make the best decision for the company, potentially generating an increase in revenue.   References Code of Ethics Law and Legal Definition. (2010). U.S. Legal Definitions. Downloaded on January 8, 2010 from http://definitions.uslegal.com/c/code-of-ethics/ Cowton, C. (2009). Accounting and the ethics challenge: Remembering the professional body. Accounting & Business Research, 39(3), 177-189. Retrieved from Business Source Complete database. Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D., Schatzberg, J. (2008). Introduction to management accounting. [University of Phoenix Custom Edition e-text]. New Jersey, Pearson-Prentice Hall. Retrieved January 8, 2010, from University of Phoenix, ACC/561 Accounting Course Web site. The Guillermo Furniture Store Scenario. (2009). Week one supplement: Guillermo Furniture Store. Retrieved January 7, 2010 from University of Phoenix, Week One, ACC/561 – Accounting Course Web site.