Guillermo Navallez is a successful furniture manufacturer in Sonora, Mexico. After new international competitor entered the market and one of the largest retailers opened doors in the community, however, this caused a dent in his business as he was faced with falling prices rising costs. He has several alternatives to consider in attempt to offset these negative events and keep his business afloat.
After doing some research, and weighing his options, he knew that merger is not something he is willing to take on; thus leaving a few other possible solutions and they are: converting his production to the high-tech laser lathe which would be quite expensive but would cut the production costs dramatically; becoming a representative for another Norwegian manufacturer, or concentrating on his already patented process for creating a coating for his furniture.
In his decision making process, Guillermo should first look at the existing budget and performance reports.
A budget is the quantitative expression of a plan of action which also helps to coordinate and implement plans and the performance reports provide feedback by comparing results with plans and by highlighting variances, which are deviations from plans (Horngren, 2008). He can use the projected information for labor hours and production value to assess the profits if he decides to sell coated furniture. The budgeted information will also aid him in assessing the profitability of the high end manufacturing that he intends to retain if he decides to become a representative. The budgeted net revenue will give Guillermo a good estimate of the net revenue and net earnings he can expect if he should sell coated furniture.
The performance reports, especially the income information gives him the comparative figures that he can expect to earn using the current method, hi tech method and becoming a representative. In case...