Importance of budgets and performance reports Guillermo decision making process
Budgets and performance reports are vital tools used in business to regulate the level of companies’ expenditure. Due to the financial challenges faced by large and small organizations during their operations, firms must emulate budget to effectively allocate the scarce resources. Guillermo can use the performance reports and budgets in various ways. First, he can use them to know the area that is not achieving its objective due to low budgetary allocation (Elliot & Elliot, 2004, p. 23). In this way, it will be possible either to increase or decrease the budgetary allocation for such departments. Secondly, Guillermo can use the performance reports during the diversification of product line. For example, products that are performing poorly in the market may be modified and reintroduced in the market. On the other hand, well performing products can be produced in large quantity to meet the customers demand. Guillermo can also use the budgets to decide whether to expand the business operations or close the loss making branches. It is good to note that loss-making branches should be closed to avoid unnecessary budgetary allocations that only increases the company expenditures and decrease revenue. The financial decisions such as the level of salaries, amount of profit to be ploughed back, savings and assets to be purchased can also be made based on the performance reports and budgets. Competitors’ financial information that is retrieved from magazines can also be used by Guillermo to make informed decision on how to face them in the market (Goodyear, 1996, p. 36).
How ethics might influence Guillermo accounting decisions
Ethics has a great role in the operations of any business. Guillermo Navallez could have faced the stiff competition by lowering his prices lower than those of the competitors. Even though the competitors were making high sales due to their low market entry prices, the decision of Guillermo to lower prices can be irrational. This is based on the fact that it can result to low profits for the business. In addition, by emulating ethics Guillermo will be able to maintain proper documentation that is necessary during auditing and tax computation. One way through which some companies evade tax is in keeping of poor financial records and downward manipulation of the sales figures. It is therefore essential that good ethics be adopted not only by Guillermo but also by also other businesses in the furniture industry.
Important accounting information for Guillermo to consider when making decisions
The cost of labour is one of the important aspects that Guillermo need to consider. This cost should be maintained at low level to widen his profit margin. To put the labour cost at low level, Guillermo should hire experienced workers and marketers who do not need much training (Horngren, 2008, p. 56). Production cost is another important accounting information that Guillermo need to consider. Even though he is focused to face off his competitors, he should not emulate very expensive production facilities that may worsen his financial position. Likewise, Guillermo should adopt effective strategies to reduce the cost of distributing his products. This can be achieved by minimizing the number of channel members who Guillermo uses as distributors. In conclusion, it is clear that the cutthroat competition currently been experienced in the business arena calls for strong marketing strategies for companies to thrive in the market.
References
Elliot, B. & Elliot, J. (2004). Financial accounting and reporting. London, Prentice Hall, London.
Goodyear, L. (1996). Principles of Accountancy. Lowa Goodyear-Marshall Publishing Company.
Horngren, T. (2008). Introduction to Management Accounting. London, Pearson Education Incorporation.