Download file to see previous pages...
This paper discuses budgets, ethical considerations, and other relevant information Guillermo must consider.
The current budget for Guillermo Furniture Store has some serious flaws due to an imbalance between income and expenses. In the business world in order for a company to succeed in the long run its income or revenues must exceed its expenses. Guillermo has options available to him, but many of these options require radical change for Guillermo. Two options are to acquire a competitor or to merge with another company. The acquisition of a new firm has to be analyzed based on the budget of the company. The buyer has to have enough capital available to make the purchase. Merging with another competitor can help reduce overhead costs. A potential downside of merging is inefficiencies associated with organizational culture conflicts. The employees from the different business entities have different ways of doing business. Guillermo does not like the time commitments and loss of independence associated with these two options.
Budgets are useful accounting tools that can help managers make important decisions. Businesses that do not use budgets can fall victims of misspending and cash shortages. Operating budgets are typically created to forecast the income and expenses of companies for the next year. When managers are dealing with strategic decisions in the long term they use budgets for longer periods of time. Techniques such as time series and regression models can be useful for forecasting purposes. The use of budgets can help managers determine how to implement process improvements to reduce cost. A budget can help a manager determine when the income of a company is insufficient to cover its expenses and make a profit. A budget can also be used by managers to determine when to buy equipment and machinery. If a company makes an above normal profit during a month it can invest more money on equipment. In
...Download file to see next pagesRead More
Guillermo Furniture is also faced by such challenges where it becomes essential for the managers to evolve new strategy not only for survival but also for maintaining a competitive advantage. Guillermo Furniture, a leading store of premium brand of furniture in Sonora, Mexico, is also facing huge problems due to fast changing external environment.
The company had a good business going due to the fact that the firm faced minimal competition, low labor costs, and the firm was able charge a premium price for its products. Then suddenly things changed as a new competitors enter the marketplace.
As indicated in the case investing in robots and expanding the production facility is a very capital intensive exercise and therefore the volume required to make the project feasible is very important. Guillermo is currently producing 2,532 units of the Mid-Grade furniture and 506 units of the High-End furniture
When costs are down and prices are up corporations can generate better profits. Guillermo Furniture Store in the late 1990’s found out that in business one must adapt in order to continue success. The principle of valuable ideas states that new products and services can add value to a company (Emery & Finnerty & Stowe, 2007).
Current Scenario In the wake of globalization and due to philosophy of comparative advantage ruling the roost, Guillermo’s existence has been threatened by one of the overseas manufacturer and marketer ever since it has entered into Mexico. The competitor has been selling the products at competitive prices, which Guillermo is unable to match as that is evident from the text “a high-tech approach, this foreign competition provided furniture to exact specifications and did so with rock-bottom prices” (Guillermo’s Case).
New players came up in the market that was able to produce quality furniture hence a heightened competition. Moreover, the economy grew feebly to an extent the owner might be forced becoming a mere distributor as opposed to a producer. There is a great desire by the company to find the best solution to increase its profitability in the intensely competitive environment.
RECOMMENDED OPTION: Among the given options it is advisable for Guillermo to under-take change in its business model. It shall incorporate the high tech solution for its business to meet the competition and reduce the impact of increasing cost. Among the given options it has mainly been suggested for the reason that with one time investment, it will enable business to reap benefits in the long term unlike other options which would require business to constantly strive to stay competitive.
Guillermo was unwilling to consider merging with, acquiring, or being acquired by, other furniture manufacturers and dealers. He has, however, the option to consider several other alternatives. The case explains what accounting