Guillermo Furniture Store Scenario

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Date Submitted: 10/12/2010 05:56 AM

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Guillermo Furniture Store Scenario

Guillermo Furniture Store Scenario

Guillermo Navallez has manufactured furniture in his hometown of Sonora, Mexico for years. Recently, two different events led to Guillermo’s profits falling. First, a foreign competitor who could provide its customers with custom made furniture that met their exact specifications and charged low prices. Second, Sonora became home to one of the largest retailers in the nation’s headquarters, causing Sonora to expand. With the low cost of living expenses, fair weather, scenery, a new international airport, and plenty of development, more people moved into the area causing an increase in jobs and a higher cost of labor. Guillermo needs to use a budget and performance reports, ethics, and accounting information to make decisions. If he uses the right resources along with good decision-making, he can turn the company around and see profits increase.

Budgets and Performance Reports

According to Horngren, Sundem, Stratton, Burgstahler, Schatzberg, 2008, p. 13, “A budget is a quantitative expression of a plan of action… Performance reports provide feedback by comparing results with plans and by highlighting variances, which are deviations from plans.” Guillermo’s budget includes all expenses and revenues for the company. It also specifies how money is to be spent and puts expectations on expected revenue. The budget is essential in planning for the future of any company.

Performance reports are used to compare the company’s performance against their profits and budget expenditures. The variable shows if the company has spent less than the budget showed or more and likewise, whether they exceeded or fell short on revenues for the period. By analyzing performance reports, Guillermo could find better ways of handling business and revise those not working in his favor as far as profits for his company. “…management by exception…concentrating on areas that deviate from the plan and ignoring...