Guillermo Furniture Store located in Sonora, Mexico is a local furniture store that offers traditional pieces and high-end custom pieces. Guillermo has faced many changes in the dynamic of his business location from growth and competition. Changes in the cost of labor and growth potential that can benefit Guillermo whi9le aligning his company for success in the future. To enable a well thought out plan, discussions of the areas of concerns are addressed in this paper.
Cost relationships and behaviors
The costs that effect Guillermo’s furniture store are the increase in labor costs, high-tech automation, foreign competitor with robotics and precision, growth of the ...view middle of the document...
This recognition of cost and affect will determine the correct plan for Guillermo Furniture.
Guillermo needs to research control systems that can allow the company to move forward and make the best decision for the company. Employing the cost, profit and investment centers according to Horngen, (et. al., 2008), will help Guillermo look at all areas of the business and add the controls that will prove most beneficial to the company. Cutting overhead, looking at alternative avenues can assist in the determination of what is best while maintaining the schedule he wants for both himself and his staff. Much of the added value and benefits come from the high-end and finish he applies to the furniture as it was patented. The largest area of concern with Guillermo furniture is the cost analysis especially since Guillermo is considering automation. He would better fair if he became a broker and offer to apply his flame retardant finish to the pieces and add value to the pieces coming from Norway.
Break even analysis
Understanding the break-even point of budget is critical to understanding what it will take to turn a profit. A break-even analysis is an analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point (" Break-Even Analysis," 2011). In order to determine the break-even point analysis of the budget, the profit had to be set to zero and the units of Mid Grade furniture is assumed to be zero (0), and the High End units sold are denoted by the variable “Z”, and the calculations are as follows:
0 = Net Earnings = Total Revenue – Cost of Materials – Labor – Benefits – Fixed Costs - Depreciation
0 = (Sales Price x Z) – (Mat. Cost x Z) – (Hourly Rate x Hours of Const x Z + $50,000) – 10% x (Hourly Rate x Hours of Const. x Z + 50000) – $13975 – $50,000
0 = $879Z – $250Z – $450Z – $50,000 – $45Z – $5,000 – $13,975 – 50,000
0 = $134Z – $123,975
$123,975 = $134Z
Z = 925 units
The same calculations can be used to figure out the units of Mid Grade Furniture that need to be sold to break-even when the high end sales equal zero (0) units. The Mid Grade unit sales would equal 3,179 units. When the points (0, 925) and (3179, 0), shown in Table 1 are graphed (Figure 1), a linear regression analysis can be completed to get a better picture of the range of unit combinations that can cause a break-even point for Guillermo Furniture.
From the linear regression analysis, the possibilities of break-even rest along the line and can be calculated via the equation listed on the graph in figure 1. As far as the flame retardant chemical sales effects on the break-even point, there would be none. The cost to produce the flame retardant is $2 per liter and the market value for the chemical is $10 per liter. Since the plant can only produce 62...