Guillermo Furniture Scenario

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Date Submitted: 09/12/2011 07:02 AM

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Guillermo Furniture Store Scenario

Guillermo Navallez is faced with some tough decisions regarding the future of his furniture company. With increased competition and growing labor rates, Guillermo must decide whether he should make an investment in a highly automated high-tech solution to help cut down production costs or transition his company focus from manufacturing to distribution. To aid in this decision, Guillermo must take a hard look at his budget and performance reports, specific accounting information and while relying on good ethical standards.

Managers use reports generated by managerial accounting daily to help make decisions within the company, (Geense, 2005). Guillermo could use his company’s past and current budgets to determine whether or not he has the capital necessary to make the large initial investment required to provide a high-tech solution. By using past performance reports such as comparisons between budgeted profits and fiscal year actual profits he could identify trends to help determine if the company is over running or under running each year as labor rates increase. Also, Guillermo could use a budget to determine the potential profit margins and costs if he was to transition to a distribution company. Solid accounting information would provide estimated overhead for making the shift aiding in his cost-benefit analysis.

Another factor that will play into Guillermo’s decision making process is ethics. Ethics, which is the integrity in which people operate on, has been the Achilles heel for many companies over the years. A more famous example where poor ethical decisions in accounting destroyed a company from within is what took place at Enron, (BBC News, 2002). Accountants who simply choose to produce false earnings and executives who played along led to one of the most catastrophic collapses in our countries histories. In order for Guillermo to make the best decision for his company, he must be able to rely on...