Guillermo Furniture Store Budget Analysis

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Date Submitted: 01/08/2010 01:06 PM

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Guillermo Furniture Store Budget Analysis

Guillermo Furniture is undergoing a change within the marketplace, and within itsown internal structure. The Flex Budget that is currently being used has been adequate, but with the changes ahead the budget needs to be analyzed to see if any adjustments, positive or negative, need to be made to keep the company in good financial condition and allow it to run as efficiently as possible. The following analysis will show some risks that are associated with the current sales forecast, propose adjustments that need to be made to the budget, and discuss any ethical considerations that may arise with the use of the budget.

Upon looking through the budget, the first thing that stands out is labor cost, payroll, and benefits. The budget amount for labor cost is approximately $50,000 over the budgeted amount. Looking at the labor time per unit, the mid-grade product is coming in $1.50 per unit over the budgeted amount. The production of the mid-grade shows that there were 215 more units produced than were budget, so at a labor cost of $21.50 per unit, that shows an increase of $4622.50 in labor cost for the mid-grade. By increasing the budgeted units of production to 2700, that decreases the labor wages by $34,500 thus having a positive effect on operating expenses, but increasing income taxes.

An item related to labor cost per unit is the units produced. Currently the mid-grade is 20 and high-end is 30. The actual cost per unit on the mid-grade, as stated above, was $1.50 more per unit than budgeted. According to the data, the actual cost per unit on high-level shows $2 less than what is budgeted. If the budgeted cost per unit is adjusted to reflect the current actual, this would provide another boost to the net earnings.

Currently the direct material cost per unit for the mid-grade product is budgeted at $140. If this can be adjusted to $150 per unit, that would bring an increase of $16,165 to the net earnings. If...