Guillermo Furniture

Guillermo Furniture Store

Brad Harris

University of Phoenix

Instructor, Amy Ball

June 2, 2010

ACC/561

Guillermo Furniture Store

The Guillermo Furniture Store is in Sonora, Mexico, and produces a large amount of furniture. Sonora is rich in raw materials and inexpensive labor. However, in the 1990s an overseas competitor began producing the same furniture with newer technology at a much higher rate than Guillermo Furniture. Sonora also experienced enormous growth in retail manufacturers and population, which increased cost of labor resulting in a decrease in profit margin. The owner, Guillermo Navallez, must make a decision to either consolidate, expand, invest in newer technology, or become a distributor. He will base his decision on his company’s accounting information.

As Guillermo uses budgets and performance reports in his decision-making, he reflects on the profitability of his products internally as well as externally examines the financial status of his new competitor. As Guillermo decides whether to merge, expand, purchase new equipment, or become a distributor, he can use accounting to further understand his company’s historical performance. Avoidable and unavoidable costs are expenses Guillermo needs to consider when finalizing his decision to either add or delete products or services. Through categorizing his expenses as avoidable or unavoidable, Guillermo can make a more educated decision about which alternative will be most profitable. Incremental analysis occurs when managers analyze the differential costs between a given situation and a proposed alternative (Horngren, 2010, p. 248). Outlay costs of new equipment/technology and opportunity costs also factor into Guillermo’s decision making process. Managerial accounting, which is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information, is the basis by which Guillermo can make his decisions.

Accounting...