Guillermo Furniture Store Scenario

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Date Submitted: 02/05/2011 11:16 AM

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An organization’s ability to predict future cost and revenues based on differing alternatives can be the success or failure of a business (Horngren at el., 2008). Guillermo Navallez, the owner of the Guillermo Furniture Store is faced with several business alternatives as a solution to his decrease in profit margins. As a company that provided a specialization in handcrafted furniture with inexpensive labor, competition from an international competitor and the rise of labor cost has threatened the business. Guillermo’s competitor uses a high-tech automated system, although changes in the local economy as a result of growth have increased labor cost. The current alternatives are to invest in a high-tech solution automating production that will reduce production cost. The other option is to become a representative of a potential international rival but still perform high-end custom work or also using its patented furniture coating process when demanded. Performance reports, budgets and accounting information must be analyzed to decide the best revision for operations.

This organization that was once doing well is facing a significant decrease in business. Based on performance reports, Guillermo can identify exactly where deviations from the budget exist. A performance report on sales will identify the specific impact to high-end and mid-grade furniture sales, including sales on its patented furniture coating process. A performance report on plant overhead cost will also demonstrate how labor costs have impacted the business. Using the results of the performance reports in comparison with the budget will show a variation from what was planned or budget and what the actual figures are. Performance reports compare actual results to budgets, thereby motivating managers to achieve the objectives (Horngren at el., 2008).

The organizational objective is the growth of the company and based on the budget this was not achieved. In essence, the plan failed. So...