Guillermo Furniture Store Scenario

Guillermo Furniture store is a furniture manufacturer operating in Sonora, Mexico. The owner, Guillermo Navallez, has experienced shrinking profits and rising costs. A competitor has entered the market using a technique that produces quality furniture which they sell at rock-bottom prices. Sonora has experienced a population growth which has resulted in higher labor costs. In order to continue his business on his own terms, he is faced with one of three decisions that include converting to a new production model that would decrease his production costs, become a representative for another manufacturer, or market his flame retardant coating method. The information that Mr. Navallez must use should be relevant information that directly affects the future outcome. Says Charles T. Horngren, Gary L. Sundem, William O. Stratton, David Burgstahler, and Jeff Schatzberg,   "Making business decisions requires managers to compare two or more alternative courses of action." They further conclude that " That is, relevant information is the predicted future costs and revenues that will differ among the alternatives." (p. 198)
Mr. Navallez's use of budget and performance reports are relevant pieces of information that will help him decide the future of the company. For example, the company's budget shows a loss of income for mid-grade furniture. The company is producing more than what is expected which means the production costs are higher than expected. Also, the variance analysis shows how much more or less is actually being produced and what the associated costs are. This information will be helpful to Mr. Navallez in predicting how future months may fare at the current production process versus the outcome of actual figures after the implementation of a new production process. Another tool would be the income statement. "In many cases, income statement information is relevant to decision making because it specifies how alternative...