University of Phoenix

ACC 561 Accounting

Guillermo Navailez had many important decisions to make and a vast amount of information to process before moving forward after the events of the 1990's. The first was to analyze the marketplace and the second was to analyze the Guillermo Furniture Company. After finding his place in the marketplace, Guillermo then needed to make decisions base on data on whether is it was wise to continue. Computing measures of profitability and a break even analysis will determine weather or not this will be a feasible option. If the determination is to continuing operating, the control system will allow Guillermo Furniture to stay on track.

Influence of Cost Relationships and Behaviors on Decision Making Prerogatives

Properly controlling costs is one of most important activities a company performs. A company has more control of costs then it does of revenues. Many companies have felt the devastating effects of making poor financial decisions regarding costs. Guillermo furniture has watched labor costs rise in recent years because of an influx of people and jobs. A new competitor has emerged competing with a high quality low price product causing profit margins to shrink. These events have made it very important for Guillermo to make decisions regarding costs very carefully. Understanding cost relationships and behaviors has become important as ever to Guillermo’s long term survival.

It is necessary for Guillermo to determine relevant cost drivers so costs can be measured. The cause and effect relationship (that is, the cost driver causes the resource cost) that an accurate cost driver provides is extremely useful (Horngren, Sundem, & Stratton, 2008). This will allow a relevant range to be developed and any excessive variances can be addressed. Determining proper cost drivers will be somewhat dependent on the strategy