- How could Guillermo use budgets and performance reports in his decision-making process?
Guillermo can use budgets and performance reports in several ways in his decision making. The decision that he needs to make is whether he should go in for the computer controlled laser lathe manufacturing process, he should become a representative for the manufacturer in Norway or he should sell coated furniture. To assess the profit he needs to use labor hours and production value, if he wants to sell coated furniture. He should expect to sell coated furniture and in this case budgeted net revenue will give the company a good estimate.
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 of the current method he can expect a net income before taxes of 46,118, if he uses hi tech method he can expect a net income of 213,174 and if he becomes a broker he can expect a net income of 65,041. However, to make a balanced decision Guillermo needs to consider the investment that he has to make if he decides to go in for each option. Especially, he needs to evaluate the investment that he needs to made for going hi tech.
The production data for the flame resistant coating gives Guillermo the exact estimate of making flame resistant and fully treated furniture. He needs to compare this estimate with the actual price he can realize for these products.
- How might ethics influence his accounting decisions?
Ethics will influence Guillermo's accounting decisions in several ways. Guillermo will have to make hard accounting decisions when he makes the budget for hi tech decision making process. He has to show honestly the profits he is likely to earn under each method. In particular the mortgage note payable makes his debt to equity ratio not favorable. He has to honestly present his debt equity situation when he attempts to finance his hi tech manufacturing initiative.
His accounting decisions should be ethical and upright with respect to taxation, the calculation of overheads, estimated broker costs, the expected labor rate and the production capacity. Virtue ethics may also influence Guillermo's decision because if he goes in for hi tech production, he may have to lay off several employees and may feel that it is an act of poor moral worth. Moreover, if he feels that becoming a broker, he might promote a foreign company, he may decide against that option from the consequential ethics perspective.
3. What accounting information is most relevant for Guillermo to consider when making decisions?
The accounting information that is most relevant for Guillermo to consider is the net income before taxes he can earn in each of the three options. However, this information needs to be compared with the additional investment he has to make in each case and the cost of capital he has to incur for making the investment.He should then compare the additional net income before taxes that he will earn with the additional cost of capital. In case of the broker option and hi tech option there is an increased level of depreciation charges, however, since the depreciation in both the hi tech and broker option are the same, it is likely that the additional cost of capital that may be incurred for acquiring hi tech machinery is not included in the depreciation cost.