Guillermo Furniture Store Budget Analysis

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Guillermo Furniture Store Budget Analysis Paper

Hilton Glynn, Steven Briggs, Courtney Mercer, and Scott Langer


6 June 2010
William Wyngaard

Guillermo Furniture Store Budget Analysis Paper

According to Horngren, Sundem, Stratton, Burgstahler, and Schatzberg (2008), a study suggested that more than 150 organizations in North America listed budgeting as the most frequently used cost-management tool. This indicates that the importance of Guillermo’s budget cannot be over-stated. A budget establishes the guidelines for operating and controlling the business using anticipated income and expenses activities. It allows managers to compare expected financial objectives with actual outcomes. Managers can then evaluate how …show more content…

For some critical items, any deviation may prompt a follow up by the appropriate party. However, for most items - like the budgets for finishing wood or flame retardant coating, even if processes go normally, variances are still unlikely to be exactly zero. Although for some items Guillermo must set a specific range of an acceptable variance based on economic analysis to determine if a variance is worth an investigation. Some companies use variances primarily to fix blame, and often find that managers resort to cheating and understating to under- mine the system (Horngren et al., 2008). If the lower-level managers know that the variances will be held against them it may cause some level of ethical misconduct. This system has led managers to cheat and falsify reports to avoid unfavorable variances (Horngren et al., 2008). The lower level managers’ ethics can be questioned but the system is at fault as much as the managers. Conclusion Any successful endeavor requires careful planning and controlling actions. Managers should have clearly communicated objectives against which to measure performance, quickly identify variances and take actions to correct as necessary. The budgeting process creates the organization’s operations master plan and is most effective when it engages employees at all levels of the organization.
Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to management

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