Capital Budget Recommendation
Guillermo Furniture Overview
Guillermo Navalez is an owner of a small furniture manufacturing company near his home, Sonora, Mexico. Sonora offers mild weather, beautiful scenery, and inexpensive housing. Guillermo is the largest manufacturer of furniture in his area where the supply of timber for tables and chairs is easily accessible due to the nature of resources (University of Phoenix, 2010). Labor is also inexpensive and Guillermo was making profit up until the late 1990s. With the rise of competitors, Guillermo’s profits were declining. This paper analyzes the alternatives for the continuation of the business and the various techniques used as a base for the recommendation.
In the late 1990s, Guillermo found his business loosing profits due to increase of labor costs and competitors. A competitor started a high-tech approach in the production of furniture. The high-tech approach consists of a computer-controlled laser late that produce similar cuts to the furniture with exact specification (University of Phoenix, 2010). With the lowest costs possible, the competitor can produce low priced furniture and earn profit. Guillermo’s profits have been deeply affected by this new approach. To be able to stand against the competitor, Guillermo would have to decrease prices of furniture and operating costs while maintaining quality. However, this would hurt his earnings. The competition brought along an increase of the labor costs. A large national retailer had moved his headquarters to the Sonora area. Guillermo’s profits began to decrease with the increase of production costs and the falling of furniture prices. To remain in business, Guillermo has to look at the available alternatives and choose the option that would be best for the company. While making a decision, Guillermo has to consider the future of his family and his employees. One alternative would be to install the computerized machine into...
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