Guillermo Furniture Store Analysis

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Guillermo Furniture Store Analysis

Robin Fitzgerald, Basil Hutchinson, Reshanda Lunsford, Latoia McFarland

University of Phoenix

Accounting /ACC561

Don Schroedle

June 21, 2010

Guillermo Furniture Store Analysis

Analysis of the Guillermo Furniture Store budget reveals predicted net earnings of $26,748; however the actual net earnings resulted in a loss of $19,043. The negative earnings and the large unfavorable variance in earnings are caused by the inaccurate sales forecast of production levels for the Mid Grade and High End product lines. Adjusting the production levels and the budget for the Mid Grade and High End product lines based on the average past sales levels will improve net earnings.

Flex Budget Adjustments

Guillermo Furniture Store’s Flex budget over estimated the amount of High End units that would be sold and the labor cost of the Mid Grade unit. The recommendation is to change the budget amount for the high end unit to 430 and see how that affects the numbers. Also, they slightly under budgeted the Mid Grade labor of 20.00 hours/unit. The recommendation is to change this to 22.00 hours per unit and see how the numbers change.

Other adjustments I would consider are the following:

• Office Salaries change to $53,000

• Labor Time (Hrs)/Unit change to $15.50

• Utilities change to 9,200

Risks Associated with Sales Forecasts

“A sales forecast is a prediction of sales under a given set of conditions” (Horngren, 2008, p. 303). The techniques used to construct a sales forecast identify risks associated with these predictions. Factors such as market trends, economic conditions, and consumer demand make it difficult to correctly predict future sales. A review of Guillermo’s forecasts of high-end and mid-grade product sales compared to actual performance identifies variance of projections that can either positively or negatively affect net...