Guillermo Furniture Store Flex Budget

Abstract The purpose of this paper is to explain, firstly, how the cost relationships and behaviors at Guillermo Furniture Store determine decision-making prerogatives for the manager. Next this paper explains what control system might Guillermo use to help it achieve his store’s organizational goals. Lastly this paper provides a break-even analysis on the current situation considering the possible effects of selling the flame-retardant separately for Guillermo. Guillermo Furniture Store Flex Budget In 1980, The Guillermo Furniture Store was enjoying a profitable business in Sonora, Mexico.

During 1990 the company began to lose its high profitability. It was able to identify the problems. Now it had to make amendments to survive and make good profit. It realized that proper accounting needed to be done, and costs etc needed to be evaluated before decisions were made. Hence, a number of things needed to be considered. The first and foremost thing that must be considered for Guillermo Furniture Store is, how the cost behaviors at Guillermo can affect the decision making prerogatives as well as the strategies that the managers can adopt.

There are many different ways in which the cost relationships and behaviors can affect the decision the manager takes. Costs are receptive to any changes in production and sales and cost behavior is one of the best ways of describing this change. However, in order to be effective, the data must be comparable to similar and relevant data. If the correct, present and previous data is properly analyzed, Guillermo will be able to determine its CVP (cost volume profit) relationships easily.

Order custom essay Guillermo Furniture Store Flex Budget with free plagiarism report

450+ experts on 30 subjects Starting from 3 hours delivery

Get Essay Help

The way in which Guillermo allocates cost, will be the deciding factor in, how efficiently and easily cost behavior and relationship analysis can be done for it. It is a general rule in accounting that, if a cost is easily traceable to its origin and can easily be allocated under the right head, then analysis becomes easy. Basically there are four major heads in accounting; service departments, production departments, products and services, and customers department. The costs allocated to each can further be simplified into direct and indirect costs. Once allocation is complete, the next step is important.

Managers of the various departments must watch how these costs are behaving in their departments. What are the costs sensitive to? Etc. The managers must keep a track of the costs associated with the production and services department, because these costs are interrelated to other costs and also have an influence on the actual cost of products and services. The higher the cost incurred the higher will be the price of the product for the customer. Another important aspect of costs which help managers in making decisions is customer profitability and how costs affect it. Costs are allocated in the different departments on certain bases.

These bases are called cost drivers. When managers constantly monitor them, they can build relationships between the costs and their drivers. One way in which managers can determine their decision making behavior is, to have rules and regulations for allocation of costs under different heads. For example rent is usually allocated on the basis of floor area occupied . Besides this it is important that fixed and variable costs are separated, because many decisions of production can change on this basis. If the above steps are taken, it will become easier to manage things for Guillermo.

Another important thing for Guillermo is the types of control systems that it uses. A management control system helps in gathering data of costs etc which helps in making financial and production decisions and evaluating the performance of the departments, the company and employees (Horngren, 2008). Guillermo has to make certain changes if he wishes to achieve his goals. For this, just like any other organization he has to make sure his teams understand their role and accept the change. In order to ensure that the change is not met with resistance, he will need to explain it and that means communicating the change properly to the employees.

Guillermo has many options regarding the control system he can adopt. However, developing the ideal control system for Guillermo would depend on which alternative he selects. The right one will make his business profitable and prosperous once again. Basically Guillermo has three options. Firstly, he can reduce his production cost by using technology (i. e. he can automate his production process). This would mean an initial cost of buying machinery etc, but in the long run the cost of production would go down.

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

Check my essay Hire Writer