Guillermo Furniture Store Scenario

851 WordsAug 1, 20094 Pages
After a new competitor from overseas entered Sonora’s furniture market and one of the largest retailer in the nation opened headquarter in Sonora, Guillermo's Furniture store experienced serious business problems. As a result, Guillermo’s profit margins shrink, as prices fell and costs rose. (UOP, 2009) After conducting some research Guillermo came to the conclusion that he has at least three alternative courses of action to proceed: • Apply high-tech methods to the production cycle • Become a representative for another manufacturer • Differentiate the product by creating a stain resistant coating which will add the value for the furniture In this paper we will examine the following questions: • How could Guillermo use budgets and…show more content…
While the non-financial impacts are hard to determine, they are still factors a company should consider. Any negative impacts on employees, customers, or communities could create future financial problems for the company. (Horngren et al, 2008) In an ideal situation, information for decision making should be both perfectly relevant and precisely accurate. However, in reality, such information is often too difficult or too costly to obtain. The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative. (Horngren et al, 2008) Since primary classification of costs on the income statement are by three major management functions: manufacturing, selling, and administrative, it will be definitely most relevant accounting information for Guillermo to consider. Some income statements track fixed and variable costs using the contribution approach, whereas others adopt the absorption approach that considers all direct and indirect manufacturing costs to be product costs. Both, the contribution approach and the absorption approach can be relevant for decision making. However, the key to decision making is not relying on a hard and fast rule about what to include and what to ignore. (Horngren et al, 2008) Thus, Guillermo will need to analyze all pertinent costs and revenues to determine what is and what is not relevant for his particular decision. References: Horngren, C.T., Sundem, G.L., Stratton, W.O.,

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