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Guillermo Furniture Store Scenario

  • Date Submitted: 10/12/2011 07:10 AM
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Guillermo Furniture Store Scenario                                                                                                    
    Guillermo Navallez was running very successful furniture manufacturing business until the 1990s. His hometown Sonora had immense supply of timber for Guillermo’s products as well as tolerable labor cost. The slight premium for his handcrafted products was largely accepted from consumers.   During the 1990s market conditions changed with the entrance of the new competitor and the largest retail headquarters presence in the area. The competitor was using high-tech approach and producing competitive furniture with exact specifications. Because of the new technology the competitor was charging very low prices. The expansion of the community and the increased job opportunities caused new people to move in the area. This influx led to increase in labor cost. Those circumstances were the main reason for reduction of Guillermo’s profits. At this point Guillermo needs to make a decision for the future direction of the business. Management will need to consider the relevant accounting information, analyze the budget and the performance reports, and use ethics in the process of making decision.
    Guillermo has several options to consider: acquisition from a large company, adopting high-tech approach, becoming a representative of a foreign company, or to focus on the patented coating furniture process. The acquisition or the merger was not appealing to Guillermo and he is not even willing to consider this possibility. For the rest of the options management will examine the budget forecast and the performance reports.   “A budget is a quantitative expression of a plan of action” (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, p. 13). The budget reveals the net revenue, overhead, and net earnings for the budgeted units, their dollar values, the planned financial situation, and the variance of the intended amounts.   Managers are...


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