Running head: GUILLERMO FURNITURE STORE SCENARIO 1

Guillermo Furniture Store Scenario

University of Phoenix

Management Accounting

ACC 561
 Guillermo Furniture Store Scenario

Guillermo Furniture manufactures and sales furniture in the Sonora, Mexico area which

was doing well in the 80’s but soon saw a change in the business in the 90’s. The 90’s brought

new competition as well as a city that was building up Guillermo Furniture bringing others

companies to build headquarters in Sonora bringing a change in the profitability of the business

and the business operations around it. Guillermo Furniture is with a changing business and

environment which leads the company to review the option before it. The option the company is

currently looking at are to convert production to an automation system to increase the output of

the company and reduce cost, become a representative for another manufacturer, or to use the

flame retardant stain on the furniture to increase product differentiation (Scenairo: The

Guillermo Furniture Store).

Use of Budgets and Performance Reports in Decision-making Process

“A budget is a quantitative expression of a plan of action” (Burgstahier, Horngren,

Schatzberg, Stratton, & Sundem, 2008, p. 13). The use of a budgt lets the company plan what to

do if things happen certain economic or business operations are effective as well as give the

company a direction of how much to produce and how much supplies to order to meet the

budget. A company can use a budget to compare what was budgeted verse what was actually

used in order to imporve the budgeting process and to look into and review to see why the

differences are occuring. In addition a budget can help the decision makers atGuillermo

Furniture to reivew and provide valuable information about the option that are before the

company. A “Performance reports provide feedback by comparing results with plans and by

highlighting variances, which are deviatons from plans” (Burgstahier, Horngren, Schatzberg,

Stratton, & Sundem, 2008, p. 13) can be used as well to review actual variable and fixec cost and
make changes accourdingly and to see why the differences are occring and help make more

informaed decisions.

Ethics Influence Accounting Decisions

Ethics helps provide confidence to the stakeholders in the company that the information

being reported is accurate and straightforward. Ethics helps direct people and professionals from

wrong to right and good and bad in order to make decisions that are honesty and have integrity.

In order for the business to be successful the company’s reputation is important to keep positive

in the eyes of the public. If the company is seen in a negative light than customers will not be

willing to buy and suppliers will not be willing to do business with the company. Ethics has an

influence on every part of one life including the life of a business. When a business is faced with

decisions and options to make in order to advance the profitability or change direction of the

company not only is the quantitative reason should be taken into account but all the integrity and

ethical reasons as well. Some decisions Guillermo Furniture is faced with can be seen in a

negative light by stakeholders and customers that can harm the reputations if not done with

integrity and with ethical consideration.

Relevant Accounting Information to Consider When Making Decision

“Relevant information is predicted future costs and revenues that will differ among the

alternatives” (Burgstahier, Horngren, Schatzberg, Stratton, & Sundem, 2008, p. 198). Guillermo

most relevant accounting information to consider is the quantitative and qualitative differences

in the plan for the different options the company has before it. Understanding the differences in

the options and how those options will impact the company as a whole can help the decision

makers of the company make decisions that are more informative. It is important for the

information being presented to the decision makers to be accurate. The accounting information
need to be accurate even though it may not be percise but the predictions have to have the most

accurate up to date information in order for the make the best decision. There are different

decision models that the company can use to review the information which are aborptions

approach and contributions approach. The absortption approach is “a costing approach that

considers all indirect manufacturing cost (both varable and fixed) to be product (inventoriable)

costs that become and expense in the form of manufacturing cost of goods sold only as sales

occur” (Burgstahier, Horngren, Schatzberg, Stratton, & Sundem, 2008, p. 201). This approach

helps the deicsion makers review the information as sales are made, which in the case of

Guillermo Furniture decided which road to take the absortion approach would not work as well.

The contribution apporach is “a method of internal (management accounting) reporting that

emphasizes the distrinction between variables and fixed costs for the purpose of better decision

making” (Burgstahier, Horngren, Schatzberg, Stratton, & Sundem, 2008, 202). This approach

would be better use to Guillermo Furniture to see how the options would affect the company and

which options would be best for the company.

As company are faced with options the decision makers in the company have to make the

best choice for the company that they possiable can. The decision makers need to take into

account not only the revlent accounting information but the ethical part of each deicison. The use

of budgets amd performance reporting can help as well. The use of accurate information and

understand all the effects of the decisions is the best way for the decisions to be made within any

company.
 References:

Burgstahier, D., Horngren, C., Schatzberg, J., Stratton, W., & Sundem, G. (2008). Introduction

to Management Accounting (14th ed). New Jersey: Pearson-Prentice Hall .

Scenairo: The Guillermo Furniture Store. (n.d.). Retrieved 06 24, 2010, from University of

Phoenix: https://ecampus.phoenix.edu/classroom/ic/classroom.aspx