Guillermo Furniture Store Scenario Essay Example

that will contribute the most toward paying off these costs. (Horngren et al, 2008) Performance reports are statements that display measurements of actual results of business activity over some time period.

For the effective decision-making process, Guillermo needs to compare the results from his performance reports with budgeted measurements over the same time period. The difference of revenues, costs and profit from the planned amounts called variance and may be favorable or unfavorable.

The reasons for unfavorable variances should be identified by Guillermo and corrective actions must be taken. “The purpose of ethics in business is to direct businessmen and women to abide by a code of conduct that facilitates, if not encourages, public confidence in their products and services. (Smith; Smith, 2003, ¶15) Although the goal of any business is to increase its profits, to do so requires the public’s trust and that trust depends on ethical business practices. From the ethical perspective, Guillermo Furniture Store must clearly, honestly, and accurately represent its product, services, terms, and conditions.

Highly competent, reliable, and objective financial statements will help Guillermo to gain clarity and to make better-informed business decisions. It is also important to remember that non-financial information can influence the decision-making process as well.

For example, if Guillermo will decide to apply new high technologies to his production process or become a representative for another manufacturer, many of his employees will be laid off because their positions will no longer be needed. What will happen to these employees and their families? How it will affect the community? What about customers who might be relying on his customer support in the future? While the non-financial impacts are hard

to determine, they are still factors a company should consider. Any negative impacts on employees, customers, or communities could create future financial problems for the company. Horngren et al, 2008) In an ideal situation, information for decision making should be both perfectly relevant and precisely accurate.

However, in reality, such information is often too difficult or too costly to obtain. The degree to which information is relevant or precise often depends on the degree to which it is qualitative or quantitative. (Horngren et al, 2008) Since primary classification of costs on the income statement are by three major management functions: manufacturing, selling, and administrative, it will be definitely the most relevant accounting information for Guillermo to consider.

Some income statements track fixed and variable costs using the contribution approach, whereas others adopt the absorption approach that considers all direct and indirect manufacturing costs to be product costs. Both, the contribution approach and the absorption approach can be relevant for decision making.

However, the key to decision making is not relying on a hard and fast rule about what to include and what to ignore. (Horngren et al, 2008) Thus, Guillermo will need to analyze all pertinent costs and revenues to determine what is and what is not relevant for his particular decision.