Guillermo Furniture Store
August 5, 2010
Guillermo Furniture Store
Guillermo Navallez??™s life is good and he is happy making furniture in Sonora, Mexico. Sonora, Mexico is known for it is beautiful vacation spot but it also is a big furniture manufacturing spot located in North America. Guillermo makes handcrafted furniture at an inexpensive price and with great quality. However, some unforeseen events occurred causing Guillermo??™s Furniture Store to look at alternatives in producing his furniture against new competition. A new company from overseas with high tech productions at a low cost has entered the furniture market and a large retailer nearby has raised the cost of labor. Unfortunately, he his watching his profits diminish as prices fall and costs rises. This paper will address how Guillermo can use budget and performance reports in his decision-making process, how ethics will influence his accounting decisions, and what accounting information is most relevant when making his decisions.
A budget report expresses a plan for future periods and is prepared at various levels of a company. It helps reflects a company??™s goal and what objective they want to accomplish. A budget is a plan of action. While examining performance reports helps to compare budgeted results with actual results. Also, performance reports give feedback by comparing results with plans and highlight variance derived from these plans (Homgren, 2008 ). Implementing a budget can help for planned sales and expenses to maximize a profit. Guillermo wants to maintain a profit and return on his investments in order for his company to keep growing and making furniture. There is a good supply of timber where he lives and a huge infrastructure is also nearby, which will allow for a bigger labor pool. The budget and performance report is prevalent to help evaluate and determine if he can stay in business against his new competition. In order for Guillermo to make the best decision for his company he has to look at the budget and performance reports because it can evaluate the managers performance while implementing a plan of action to help face his competition. It will be expensive to convert his production line into a high- tech laser like the one his competition is using. In contrast, it will reduce labor and he can produce more furniture at a faster pace. His competition is producing at a higher volume, with a lower margin and a net income which his much higher because they can produce more furniture at a faster rate.
The goal of any business is to make money. Unethical behavior can destroy a business. The purpose of ethics is to guide a company??™s employees to abide by certain rules and conduct him or herself in a professional manner. Guillermo needs to explore ideas and use accounting information to manage daily activities. ???Management accountants are committed to helping their organization achieve its strategic goals by providing decision support, planning, and control for business operations with a high level of ethics and professional competence (Homgren, 2008 ) ???. Ethics needs to influence Guillermo??™s decisions because if accountants do not portray integrity and have a high level of ethics then their information will be useless and people can??™t rely on them. Accounting information guides and helps portray which products exceed a company??™s budge profitability and which ones fall short of their budget. He needs to have an ethical accounting system if he wants to maintain good repor with his customers. ??? An accounting system is a formal mechanism for gathering, organizing, and communicating information about an organization??™s activities (Homgren, 2008 ) ???.
Ethics plays a huge role in accounting systems because customer, suppliers, stockholders, and employees need to be reassured that the information they receive from the accountants is reliable and true. Accountants help measure the costs of production and keep track of improvements that affect the company. In essence, they provide an estimated revenue and cost data of what a company needs to help make a profit. He needs to know what kind of cost are incurred to sell his patented product of coating for furniture. He also needs to cover his operating costs. He has plenty of current assets and liabilities valued at $300,000 which can cover his costs to purchase materials and invest in machinery.
Accounting information most relevant for Guillermo to consider when making decisions is planning and controlling. Plan what objectives his company needs to obtain and how they will meet these goals. Controlling is implementing his plan and evaluating feedback. Using budget reports, an accounting system, and performance reports will also enhance the future success of his furniture business. Guillermo wants to maintain his reputation of high -end custom work, but is focusing on distribution instead of manufacturing. He does not want to expand more obligations or responsibilities by managing other companies because this will affect quality time with his family. The idea of using his distributor network and helping a company currently operating solely in Norway to distribute in North America is an appealing idea he needs to consider. Looking at the accounting systems will help him understand production and operating costs in order to compete with the new business. He could focus on distribution verses manufacturing. Leveraging his distribution network he already has developed will allow him to find other sources of revenue.
In the end, Guillermo is facing three alternatives. Does Guillermo need to convert to using a high-tech laser method, be a representative for another manufacture, or he could also market his own product of a stain resistant coating for furniture that he created. Examining all relevant cost and revenues he can choose the best alternative for his future. He still has a choice. Guillermo wants to remain independent and small, but he will have to make a decision that will best suit his company.
Homgren, (2008). Introduction to Management Accounting (14thed.) New Jersey;Pearson-