Guillermo's Furniture: Budget Analysis and Ethical Considerations

Introduction

The ownership and management of an evolving business is a serious undertaking that requires much planning, research and analysis to ensure success. Creating a budget in which a business owner will be able to analyze business transactions in an effort to remain profitable and competitive is imperative. Three significant objectives include accurate sales forecasting, effective performance tools and ethical analysis regarding financial stability and sustainability of the business. Using the Guillermo's Furniture Scenario (University of Phoenix, 2009), the importance of these objectives will be demonstrated.

Accurate Sales Forecasting

Sales forecasting is a tool that a business uses to create a financial picture of future profits of the company and how that will affect expenses and gains (Horngren, 2008). When creating a budget taking sales forecasting into consideration, Guillermo's furniture needs to consider variables such as competition, cost of labor, expenses regarding new equipment to reduce labor costs and the potential benefit of partnering with a wholesale distributor (University of Phoenix, 2009). Variables impact the budget in that one may take the public financial information of a competing company and create a budget based on variables or changes that have arisen in the past and are anticipated to be present in the future (Horngren, 2008).

Effective Performance Tools

Financial management information systems used as performance tools are imperative for a company to achieve profitability from both an information standpoint and an ethical standpoint; budgets being an integral performance tool, in particular (www.bukisa.com, 2009). Guillermo's Furniture (University of Phoenix, 2009) is wise to create a master budget, which contains many

budgets within it that have a direct impact on one another (Horngren, 2008). By forecasting sales and integrating this information into all of the budgets existing within the...