Guillermo Furniture Store Budget Analysis

Topics: Budget, Ethics, Business ethics Pages: 3 (790 words) Published: October 27, 2010
Guillermo Furniture Store Budget Analysis Paper

Hilton Glynn, Steven Briggs, Courtney Mercer, and Scott Langer


6 June 2010
William Wyngaard

Guillermo Furniture Store Budget Analysis Paper

According to Horngren, Sundem, Stratton, Burgstahler, and Schatzberg (2008), a study suggested that more than 150 organizations in North America listed budgeting as the most frequently used cost-management tool. This indicates that the importance of Guillermo’s budget cannot be over-stated. A budget establishes the guidelines for operating and controlling the business using anticipated income and expenses activities. It allows managers to compare expected financial objectives with actual outcomes. Managers can then evaluate how the business is performing against set goals and objectives. Information gathered from evaluations become input for future plans, and helps determine any changes that should be made. There are some potential problems with creating and implementing an effective budget. This paper discusses some of these potential problems including risks associated with sales forecasts; examines ethical considerations in the preparation and subsequent use of the budget; and considers how the organization’s code of ethics requires an ethics analysis for any performance tool. Risks associated with sales forecasts

“A sales forecast is a prediction of sales under a given set of conditions” (Horngren et al. 2008, p. 303). The forecast is based on past sales performance and an analysis of expected market conditions. A company’s sales budget depends entirely on sales reforecast (Horngren et al., 2008). If forecasts aren’t accurate, then inventory levels will be too high or too low, staffing plans will be off, and credibility with customers, suppliers, and investors will wear away. These are just a few of the many risks associated with forecasting - financial risks, production risks, and resource risks also exist.

Companies often allocate...
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