Guillermo Furniture Store Analysis Guillermo Navallez, as an owner and manager of a specialty furniture store in Sonora, Mexico, has needed to explore many factors to keeping his business profitably operating. With the economy changing around him Guillermo has explored in the past six weeks his budget, performance reports, financial statement analysis, sales forecasts, and most recently the store’s cost relationships and behaviors. The following analysis will discuss the importance of cost relationship behaviors and how that affects Guillermo’s management decisions. It will also cover the current Management Control System, the current break even-analysis, and finally the current: return on investment, residual income, and economic value added. Together these tools will help Guillermo properly make the right decisions for his business as well as contribute to future business model.
Cost Relationship Behaviors Manager’s decisions and prerogative is affected by cost relationship and behaviors in several ways. Simply to predict cost behavior, managers can estimate the company’s future cost at different levels. This is known as forecasting. Too accurately forecast, first Guillermo Furniture Store must determine the company’s variable and fixed cost as well as the goals that he wants to obtain for the company. Guillermo needs to decide whether or not to operate off his current business model or after the analysis if he should change the current business model provides for new policies implicated. Variable costs being a “cost that changes in proportion to a change in a company’s activity or business (investopedia.com).” Fixed costs are those costs “that remain constant, regardless of any change in a company’s activity (investopedia.com).” These costs would be costs such as the mortgage payment on the property due every month. To predict cost behavior, Guillermo
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