Guillermo Furniture Store Flex Budget
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Running head: GUILLERMO FURNITURE STORE ANALYSIS
Guillermo Furniture Store Analysis
Guillermo Furniture Store Analysis
This analysis of Guillermo Furniture Store includes a revised flexible budget. The analysis discusses risks associated with sales forecasts, an analysis of ethical considerations in the preparation, and subsequent use of the budget. In addition, considerations were made regarding how the organization’s code of ethics requires an ethics analysis for performance management tools.
Revised Flex Budget
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Risks Associated with Sales Forecasts
The current sales forecast illustrates growth in both Mid-Grade and High-End product lines. Analysis of actual performance and market trends identify risks associated with these predictions. Forecasts for Mid-Grade products have shown a variance in favor of actual performance versus forecast of 594 units. The opposite holds true for the High-End product lines, which Guillermo is hinging future growth on, has a variance of -318 units at June year-to-date (YTD) (see table A).
[pic]
Despite a combined positive variance at June YTD for units produced, the net earnings indicate a loss of $45,762. The sale of High-End products has tapered over the last six months thereby negatively affecting the profit margin because it is mostly influenced by the High-End line. This emphasizes the risks associated with sales forecasting as various factors makes it difficult to correctly predicting future sales.
Ethical Considerations in Preparation of the Budget
Sometimes managers choose unethical options in the preparation and use of the budget. Some managers create biased budgets to increase the resources allocated to their department to reach output targets and create higher rewards for themselves. Managers also create biased budgets when budget targets directly affect performance evaluations. Managers participate in budget padding in which they overstate the budget costs and understate budget...
Guillermo Furniture Store Analysis
Guillermo Furniture Store Analysis
This analysis of Guillermo Furniture Store includes a revised flexible budget. The analysis discusses risks associated with sales forecasts, an analysis of ethical considerations in the preparation, and subsequent use of the budget. In addition, considerations were made regarding how the organization’s code of ethics requires an ethics analysis for performance management tools.
Revised Flex Budget
[pic]
Risks Associated with Sales Forecasts
The current sales forecast illustrates growth in both Mid-Grade and High-End product lines. Analysis of actual performance and market trends identify risks associated with these predictions. Forecasts for Mid-Grade products have shown a variance in favor of actual performance versus forecast of 594 units. The opposite holds true for the High-End product lines, which Guillermo is hinging future growth on, has a variance of -318 units at June year-to-date (YTD) (see table A).
[pic]
Despite a combined positive variance at June YTD for units produced, the net earnings indicate a loss of $45,762. The sale of High-End products has tapered over the last six months thereby negatively affecting the profit margin because it is mostly influenced by the High-End line. This emphasizes the risks associated with sales forecasting as various factors makes it difficult to correctly predicting future sales.
Ethical Considerations in Preparation of the Budget
Sometimes managers choose unethical options in the preparation and use of the budget. Some managers create biased budgets to increase the resources allocated to their department to reach output targets and create higher rewards for themselves. Managers also create biased budgets when budget targets directly affect performance evaluations. Managers participate in budget padding in which they overstate the budget costs and understate budget...