Rodolfo Furniture Store
Rodolfo Rodriguez is an entrepreneur in the furniture business in San Juan Puerto Rico. His furniture business has distinguished from the rest in the market by his employee’s craftsmanship in the manufacturing of his furniture. But recently his market has received some foreign competitor that has forced Rodolfo to search for other options and efficiencies within his operation. Among these options Rodolfo is searching for better planning and accounting tools that help him be more efficient in the budgeting and forecasting phase of his business. He has shared the budget process with his team to achieve a participative cross functional budget that will have all his departments focus on the same goal exceeding his budgeted sales. With the support of his finance and accounting team Rodolfo’s has been able to analysis his variable and fixed cost challenging each of them. The intent of Rodolfo is to adapt to the competition, evolving his business while improving his profitability.
Rodolfo has gone in detail within his number in search for the opportunities of the budget and the forecast of the New Year. This deep analysis has served to surface all areas of opportunities or liabilities and the impact of the decisions that were taken. Among the options that Rodolfo is contemplating is the investing in a brand-new laser technology that would create a more uniformed and quality product who would improve his manufacturing line. The second option that Rodolfo has been considering is creating a partnership with a European broker. Even when he has identified several attributes to this merger or association is something that Rodolfo is not too eager to sign on. The last option is to stay as he started, as one of the original furniture manufacturers. This is an option that has the showmanship but not the value or profit to survive in this competitive market.
The first analysis that Rodolfo encounter was the break-even point for the current situation, which once completed came up to $1,498,800. This means is that level of sales the revenues equals expenses and do not have any profit or loss.
Current Situation Break-even
BEP Dollars Fixed costs/CM Ratio = $224,820/15% = $1,498,800
The second analysis that Rodolfo worked was the break-even point for the High-Tech option, which after the required investment and training came up to $1,835,650.
High-Tech Situation Break-even
BEP Dollars Fixed costs/CM Ratio = $697,547/38% = $1,835,650
The last option that Rodolfo considered was the break-even point for the Norwegian Broker option, which after the required investment and training came up to $1,835,650.
Broker Situation Break-even
BEP Dollars Fixed costs/CM Ratio = $612,984/28% = $2,189,229
The first step to influence the decision-making process toward the most appropriate option for Rodolfo’s business is to understand the cost structure of the Rodolfo’s business. Fixed and variable costs distinctions will enable Rodolfo’s management team to predict how costs will behave in response to financial tendencies in the market and activities changes within the company. Assessing the viability of the business for any of the three options available will be perhaps the most critical assessment management must do. The following table shows the results of the analysis for Rodolfo’s budget with respect to the three business options available.
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Student 's signature:
Melanie Figueroa Vélez
Guillermo Santiago Peña
Héctor A. Rodríguez Vázquez
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