...Capital Budget Recommendation for Guillermo Furniture Managerial Accounting and Legal Aspects of Business ACC 543 Capital Budget Recommendation for Guillermo Furniture After careful evaluation of preexisting financial documents, an assessment has been made to determine what business decision will provide the greatest return for Mr. Navallez, owner of Guillermo Furniture. Presently, Mr. Navallez needs to re-strategize his business endeavors, because there is now new competition in the furniture manufacturing industry. The competition uses high-tech, automated machinery to mass-produce furniture at an end-price cheaper than Mr. Navallez can offer his clientele (Guillermo Furniture Scenario). Additionally, the competition has very little labor costs, as most work is done by machine; conversely, Navallez is projected to pay $44,065 in wages for the year of 2011 (Guillermo Furniture Financial Data Sheets). Although expensive, an option available to Mr. Navallez is to invest in high-end equipment and remain in the furniture manufacturing industry. In order to explore the possibility a potentially lucrative investment opportunity capital budget must be estimated and compared to the expected cash inflow. Capital budgeting techniques can be used to determine if the investment in high-tech machinery will provide a sufficient return on investment. Two methods commonly used are net present value (NPV) and internal rate of return (IRR). Additionally, the amount of time it will...
Words: 1029 - Pages: 5
...Introduction Guillermo Navallez is from the beautiful state of Sonora, Mexico. In Sonora is one of the largest furniture manufactures. Guillermo has been working in the furniture business for many years. Since Sonora has a big selection of timber it has helped to create different styles of furniture. Labor is inexpensive and Guillermo has priced his furniture for the quality of the design. As time pass there changes in the business and Guillermo has seen this effect his business. By all the changes that where happening Guillermo saw his profits go down and cost go up. Now Guillermo has to look at his choices he has to make to be able to compete (University of Phoenix, 2013). Choices Guillermo learned that there was a competitor overseas that is using high-tech approach. By using this high-tech approach competitor is able to make furniture to the exact specifications and at low prices. Guillermo looks into this choice to see what changes it would create. The second option for Guillermo is to work as distributor of furniture and keep some of high end custom work. Guillermo can also create the coating for flame-retardant and add this to his furniture (University of Phoenix, 2013). High-Tech Choice By Guillermo using the high-tech choice he would be able to use a computer controlled laser to create exact cuts in the wood. Norway high-tech company’s equipment uses highly automated and uses little labor. Since robots perform most of the precise movement and assembly functions...
Words: 1442 - Pages: 6
...ACC 543 June 13, 2011 Sean Damico Guillermo Furniture is a furniture manufacture located in Sonora, Mexico. Guillermo Furniture was thriving until the late 1990s, when the economy just took off. With new housing, competitors moved in with more technologically advanced equipment than Guillermo. Guillermo’s furniture created by hand; was one of a kind. The competitors that moved in used computer controlled laser lathe to produce exact cuts in each piece of wood. The competitors could create furniture faster and, much more cost-effective than Guillermo’s method. Guillermo is at a standstill, they need to decide which direction to take their company in. Does Guillermo continue doing business as they have been for many years or do they upgrade their system so they can compete and succeed in the current market. Guillermo has many options they need to consider before making their decision. The reason that so many customers purchased from Guillermo is that their furniture is made by hand. Guillermo needs to think about what affect automating the furniture making will have on their loyal customers who love the handmade designs. Guillermo’s Options The company is considering three different options; continue business as usual with minimal changes, invest in high-tech equipment and begin creating new furniture, or become a distributor of another product line that could potentially offer...
Words: 847 - Pages: 4
...The Guillermo Furniture Store Decisions Team A Accounting/ACC 561 November 10, 2010 Professor Rios, Angel J. Guillermo Furniture Store Decisions Navallez Guillermo’s quest to remain competitive in the furniture industry comes down to analyzing cost accounting measures. By carefully analyzing balance sheets and income statements, accounting officials can provide management a synopsis of where company strengths and weaknesses are, and then corrective measures can be adjusted to improve company performance. A break even analysis, return on investment, and residual income will be calculated as well as many other issues will be discussed to allow Guillermo to make the best informed decision for his company. In this report, Team A examines the components that make up a cost control system and explains how management uses this information in their decision-making process. Guillermo Furniture Store can use the following three systems to help achieve the store’s organizational goal. The Quality Control System is in the manufacturing business. Quality is the number one priority concerning customer satisfaction. Thereby the quality control system is required to satisfy the customer’s needs and trends. Quality control is a system of routine technical activities, to measure and control the quality of the inventory as it is being developed (Quality Assurance and Quality Control, 2010). Once ensured that customers are satisfied with their high quality, Guillermo Furniture...
Words: 1680 - Pages: 7
...Guillermo Furniture is a mid-grade to high-end sofa furniture manufacturer that operates in Sonora, Mexico. Guillermo Navallez is the sole owner of Guillermo Furniture and is looking at options that will provide the greatest return on his investment (University of Phoenix, n.d). Guillermo Furniture is looking at two options which include, (1) purchasing high-end machinery to reduce labor and production costs and (2) the possibility of becoming a distributor for a manufacturer that is trying to move into the North American market (University of Phoenix, n.d). After reviewing the information, relevant information that must be considered is financial and non-financial factors that will influence what information will be deemed relevant in each project (Edmonds, 2007). Mr. Navallez is looking to increase his profits through one of the business ventures without jeopardizing the time spent with his family and increasing managerial responsibilities (University of Phoenix, n.d). Factors that will be taken into consideration are machinery costs, training, and transfer of experienced employees, competition, production, labor, and overhead costs. In the first project, the purchase of high-end machinery appears to be a feasible opportunity but we must first consider all relevant information. The costs of purchasing the machinery are immense given the technological advancement and capabilities of the operation. With the purchase of the equipment, Mr. Navallez will have to consider the...
Words: 636 - Pages: 3
...Guillermo Furniture Store Scenario Accounting is a daily function in many areas in our lives. Whether it is budgeting in our homes, or business, accounting services are useful and necessary. Guillermo Navallez has a very successful furniture business near his home in Sonora, Mexico. In the 1990’s Guillermo’s business was facing new competition. Rising costs and falling prices were causing Guillermo’s profit margin to shrink (University of Phoenix Guillermo Furniture Store Scenario, 2011). In this paper discussion topics will include how Guillermo can use budget and performance reports in his decision-making process, how ethics can play a role in the process, and relevant accounting information in the decision-making process. Budget Reports Budget reports help control spending. The definition of a budget is “quantitative expression of a plan of action” (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, 2008). Using a budget report, Guillermo can keep track of all business expenditures. The budget report can also reflect if there is any excessive or wrongful spending. Budget reports are also relevant accounts for business earnings based on product sales. Guillermo can have an idea of which products are best sellers versus those products that are not doing so well allowing him to make any necessary adjustments to his inventory. Performance Reports “Performance reports provide feedback by company results with plans and by highlighting variances, which are deviation...
Words: 621 - Pages: 3
...Store Analysis Guillermo’s Furniture store was hit by companies that are now his competitors. Guillermo’s furniture store has been losing profits and needs to consider other options. The paper will cover Guillermo’s different choices and consider doing some of his business overseas. Guillermo furniture store has been running for over ten years and has been profitable. Then the competitors moved in and brought down the profits for Guillermo. Budgeting Guillermo watched the other furniture stores operate in different aspects to make profits. Guillermo’s flex budget was close to his units budgeted to his actual. From the data collected in the previous analysis the budget and actual cost will be close. Guillermo will try to get the variance analysis close from being significantly lower. Guillermo carefully studied the other companies and how each of them operated differently and improved his or her profits. Weighted Average Cost of Capital After doing the weighted average cost of capital, Guillermo came up with 15.7% in 2010 weighted debt. Guillermo also came up for 2011 17.5%. After confirming the weighted debt Guillermo’s asset, liabilities, and total equity improved by a slight margin from 2010 to 2011, but the debt increased. Guillermo should worry about risk. His business has lost in profits, but the total liability and equity have stayed the same in the two year comparison. The comparisons have stayed the same and that is good for the balance sheet. Although, the weighted...
Words: 1240 - Pages: 5
...Guillermo Furniture Store and Pro Forma Analysis Guillermo Navellez, once the owner of the largest flourishing furniture store in Sonora, Mexico faces globalization and the emergence of foreign competition. Inexpensive labor and the abundance of timber in Sonora are major factors, which contributed to the manufacturing of the store’s furniture. Guillermo faces new competition that possesses advanced technology with the ability to manufacture faster and at lower costs. With the emergence of this sophisticated technology, the company requires change to cease the decease of revenue and sales (University of Phoenix, 2012). Guillermo hires Jevaloch Consulting Firm, Incorporated to examine his current business forecast and choose strategies in optimal working capital. Additionally, Jevaloch will also provide an efficient pro forma budget and recommend an implementation plan. Guillermo Furniture Forecast Forecasting is an important tool for estimating the future market value for the business. Jevaloch consultants began the examination of Guillermo Furniture by reviewing a six month Figure 1.1 Budget Sales Forecasts. Figure 1.2 Actual Sales Forecasts. projection of sales forecast for units of chairs, the top sales item for the store, sold from January to June 2010. Figures 1.1 and 1.2 are representative of the budget unit sales and actual unit sales for Guillermo Furniture. The average monthly demands for the budget sales is 18,014/6 = 3002.3 and 17,997/6 = 2999.5 for...
Words: 2588 - Pages: 11
...Self-Interested Behavior, a course of action most financially advantageous for themselves (Emery, et.al, 2007). According to the scenario, Guillermo’s Furniture Store, Guillermo Navellez, owner of local furniture manufacturing plant, has identified several key alternatives which will affect his decision regarding production, labor costs, organizational management, and organizational stability. After reading this paper, the reader will have an understanding of two key points. The first point is how business decisions are effected by various alternatives. The second point explains how managers analyze and evaluate alternatives to establish the best recommendation for the business operation and cash flow of an organization. Most organizations are approached with the concept of improving its business strategy, production sales, and even customers services to compete with its competitors. This philosophy is no exception to Guillermo’s Furniture Store. However, considering the Norway furniture company, Guillermo’s overseas competitors, has invaded the turf of Guillermo, Guillermo must acknowledge that he must identify various alternatives to keep himself abreast, and endorse a new approach to maintain the business edge. In the given chart below, Guillermo has acknowledged four key alternatives he must analyze to keep the legacy of Guillermo Furniture Store afloat. These chief alternatives are as follows, consolidate with competitors, become sole distributor, market flame retardant, and implement...
Words: 1447 - Pages: 6
...Recommendation By Sara Hinton ACC543 Professor Gayle Mackay July 17, 2012 Located in Sonora Mexico is a furniture company owned by one Guillermo Navallez called Guillermo Furniture Company. The Guillermo Furniture Company has had quite the success since opening, however in the late nineteen nineties this success began to waiver. The reason for such a change in success for the Guillermo Furniture Company is due to globalization. Due to the automation embraced by the company’s competitors, which has caused a reduction in profit margins as well as raise production costs for the Guillermo Furniture Company, there has been significant decline in business. Mr. Navallez is now faced with a plethora of decisions that may or may not dramatically change the way in which the Guillermo Furniture Company is operated. The accountant that has been hired by the Guillermo Furniture Company has been assigned to analyze capital budget techniques that will help determine which course of action should be taken by Mr. Navallez. This has been accomplished by not only examining capital budget techniques but through extensive research in understanding business alternatives available to the Guillermo Furniture Company as well. There are different business alternatives available to Mr. Guillermo Navallez. Like many of his competitors, Mr. Navallez has the option of merging his business with that of a larger company or he may choose to improve his...
Words: 1157 - Pages: 5
...Guillermo Furniture Store Analysis FIN 571 May 20, 2012 Guillermo Navallez has had a very successful furniture business in Sonora, Mexico. Lately, however, the retail environment has changed. Competition has moved in to the area, and labor costs have risen. This has caused Guillermo’s profits to decrease significantly. Guillermo now needs to research options for his business, in order to stay competitive in the market. One option would be to purchase automated equipment that would make his furniture precisely as he designed, and significantly reduce his labor costs. The other option would be to become a distributor to a furniture company in Norway, and sell both his own, and the other company’s products. This paper will analyze the different options available to Guillermo, and the financial outcomes of each alternative. It will determine the Weighted Average Cost of Capital, as well as the multiple valuation techniques of the available options, and make a final recommendation as to which alternative Guillermo should explore. While weighing his decision, Guillermo must analyze the income potentials for each alternative at the current production rate, and at another lower rate, to ensure he would be able to stay in business in the demand for his products dropped. It is not realistic to only look at one rate, as business cycles tend to rise and fall, and Guillermo needs to be able to ride the highs and lows of the retail market, and be able to keep his business. ...
Words: 1128 - Pages: 5
...Capital Budget Evaluation and Recommendation Guillermo Furniture Company handcrafts midgrade and high-end sofas. Changes occurring in the business environment and economy prompt the company to find different options of investing to stay in business. The newly hired accountant of the company is asked to differentiate the various capital budget evaluations techniques, and explain how these different techniques will assist in making the appropriate recommendation. The capital budget techniques used and explained for Guillermo Furniture Company are the Payback Period, Accounting Rate of Return (ARR), and Net Present Value (NPV). Capital investment is a processes organizations use to evaluate major investment opportunities. A capital investment decision is a decision to exchange current cash outflows for expectations of the company receiving future cash inflows. One must understand the time value of money concept assist a company in developing a rational response or decision to invest. The time value of money concept recognizes the present value of a dollar received in the future is less than a dollar. When a company invests in capital assets, it sacrifices present dollars in exchange for the opportunity to receive future dollars (Edmonds, 2007, p.1150). Time Value of Money Time value of money is necessary when comparing possible business investments that have different costs, cash flows, and service lives. Processing a discounted cash flow technique, such as the net present...
Words: 1209 - Pages: 5
...Capital Budget Recommendation University of Phoenix Managerial Accounting and Business Law ACC/543 Week 1 August 04, 2014 Introduction The objective of this brief is to create a layout of Guillermo Furniture Company and their need for existing financing opportunities to be exhibited through different capital planning assessment procedures. Additionally, a short summary of how every system aids in deciding the venture opportunity with the best return will be analyzed. There will be several recommendations made and these recommendations will be coupled with present value calculations to support this proposal. Capital Budget Evaluation Techniques Different analytical routines exist to help entrepreneurs settle on wise capital investment choices. The fact remains that there are many evaluation methods and because of this, “it makes good business sense to apply the various techniques to the same proposal in order to obtain multiple perspectives” (Edmonds, 2007). The Net Present Value (NPV) method considers the time value of cash and is the capital budget strategy which concentrates on expanding the value of the business. Utilizing Guillermo's venture information, the marginal cash inflows are characterized as the expanding of net cash inflows in comparison to the current circumstance. Since we know the depreciation formula or equation under the innovative high tech choice has an anticipated valuable life of ten years. This is going to be the time period used for this...
Words: 1313 - Pages: 6
...Guillermo’s Furniture Store Scenario University of Phoenix Team C FIN/571 July 25, 2012 Dr. Guillermo’s Furniture Store Introduction Sonora Mexico is known to many people as a beautiful vacationing area in the heart of Mexico. Home to the largest furniture manufacturing companies, Sonora is also home to Guillermo Navallez, and has been for many years. Guillermo Navallez and his furniture company, produces a variety of tables and chairs, he even has a patented solution for his furniture. In addition, Guillermo handcrafts products are priced at a premium rate, which separates him from his competitors. Guillermo’s competition is increasing due to the inexpensive labor cost and location. After researching his competition, Guillermo has to determine the alternatives; he has available for his company. Based on the scenario, choices will include the high tech approach, or broker distributor. Team C chose the best approach to fit his need, and to represent what he has delivered for many years. Guillermo’s goal is to retire one day, and his best route to a safe, and fulfilling retirement is the hi-tech approach. High-tech Approach Guillermo’s largest competition has sparked uproar, in the communities of Sonora. Along with large retailer’s influence expanding, affordable housing, new establishments, and rock bottom pricing, he has to consider taking a different approach to stay aligned with his competition. Since the 90’s, two...
Words: 2714 - Pages: 11
...Learning Team A Capital Budget Recommendation Gerald Shaw, Kenneth Barre, Rosa Daws ACC/543 Linda Miller February 23, 2015 Learning Team Weekly Reflection Week 2 For this week’s assignment Learning Team A will be providing insight on the three capital budgeting techniques in relation to the Guillermo Furniture Scenario. Learning Team A after careful evaluation of the data sheets provided for Guillermo Furniture will identify the best uses for the three techniques and lastly provide a capital budget recommendation that best suites Guillermo Furniture. Three Capital Budget Evaluation Techniques-Gerald For Guillermo Furniture, Learning Team A will advise on three different capital budget techniques available to aid in the decision-making process. Those three methods are NPV (Net Present Value), IRR (Internal Rate of Return), and Payback method. NPV (Net Present Value) NPV or net present value helps an organization figure out whether it’s better to invest in a project based on the net amount of discounted cash flows for the project (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). NPV is best served positive which will indicate that the project will be a benefit by increasing the value of the organization. NPV is calculated through expected cash flows that include an initial investment, incremental operating cash flows, and terminal cash flows (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). That...
Words: 973 - Pages: 4
