The Guillermo Furniture Store Scenario (GFS) is a story that many companies face every day. Guillermo Navallez (GN) learned the importance of producing quality furniture, however, he had to make a major decision based competition making an advance within the market by producing similar products for a cheaper price. After analyzing the market and all competition involved, GN must decided to either stay in business for himself while making adjustments or merge with another competitor that is creating a production plan to produce in North America (Guillermo Furniture Store Scenario, 2009).
This analysis will discuss how Guillermo should use the concept of the competitive economic advantage, concept of the value and economic efficiency, and the concept of observing financial transactions. Competitive Economic Advantage Making good business decisions involves understanding how to relate the outcome of opportunity costs in correlation to the behavior of the consumers.
GN should view opportunity cost as the amount of return given up by not choosing an alternative option, way to spend, save, or investing money at that particular time; which means each decision has a best next alternative Lack of resources calls for an alternative and those same alternatives result in trade-offs. According to Emery, et al (2007), the Principle of Self-Interested Behavior “says that when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves” (p. 20).
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In addition, GN seems to be engaging in self-interested behavior while others are entertaining their own financial obligations. According to Emery 2007, the Principle of Two-sided Transactions include potential consumers of TGFS. In addition, when TGFS trades or allow trading of the company’s 10,000 shares of stock, the two-sided transaction includes a buyer and a seller for each share that changes ownership (Emery, et al, 2007). Concept of the Value and Economic Efficiency When a company understands the value that is brought to the consumers of interests, settling for less is not an option.
In order to understand the overall value of GFS, GN must understand the call option, the right to sell versus the put option, the right to buy based on Emery 2007. “A call option allows the developer to gain the consent of all necessary parties before investing a large amount of money—money that could be lost if any of the parties later refused to sell their land” (Emery 2007). Having an understanding of sunk cost will help GN to understand that these are expenses that have already been accrued and cannot be recovered. Budgeting and performance statements can be the financial barometers for measuring the profitability of GFS over time.
Implementing a budget at GFS will help develop a plan of action for product growth and improve marketing through the use of advertising. Accounting principles support planning and control methods; without budgets, measuring performance would be impossible. Performance is being able to measure the output of what has been planned for all budgets; will help GFS to investigate any variances from production to sales; will determine an outline for making better, futuristic decisions; and help managers balance P and L statements for each month. These statements may include accurate accounting transactions performed during day-to-day operations.
Implementing management audits would be a good idea to make sure all policies and procedures are followed from senior management; and using internal auditors would help minimize errors, waste, and fraud according to Emery 2007. Concept of Observing Financial Transaction When it comes to making various decisions, managers are put into positions where they have to decide between two or more relevant alternatives. “Relevant information is the predicted future costs and revenues that will differ among alternative courses of action” (Horngreen 2008, pg 198).
Having knowledge of relevant accounting decision making will help GN make better decisions futuristically, and understand the difference between qualitative and quantitative aspects of decision making. Qualitative aspects are those for which measurement in dollars and cents is difficult and imprecise; quantitative aspects are those for which measurement is easy and precise" (Horngren, 2008, pg. 200). After analyzing the budget for GFS, GN could investigate why a $51,672 variance in labor wages exists, which would fall under the qualitative aspects.
After analyzing the Norway plant with using robots for precision in product development, implementing new technology or outsourcing labor in another country that would help with the reduction of those labor costs would be presented under the quantitative concepts. Conclusion In conclusion, one common goal should exist for GN from the accounting side of things, which is to make sure GFS accounting practices are legal and ethical. GN Guillermo should use the concept of the competitive economic advantage, concept of the value and economic efficiency, and the concept of observing financial transactions
Reference/Bibliography Horngren, C. T. , Sundem, G. L. , Stratton, W. O. , Burgstahler, D. , and Schatzberg, J. (2008). Introduction to Management Accounting (14th ed. ). New Jersey: Pearson-Prentice Hall. Emery, Finnerty, Stowe. 2007. Corporate Financial Management. 3rd Edition. New Jersey: Pearson – Prentice Hall. University of Phoenix. (2009). The Guillermo Furniture Store. Retrieved August 9, 2009, from theUniversity of Phoenix, Week One, rEsource. https://ecampus. phoenix. edu/classroom/ic/classroom. aspx, FIN 571 – Corporate Finance.
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