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In every business set up there must be careful study of choices that are available so as to make sound decisions. Through the aid of performance reports, budgets and immense knowledge of ethics, every business is bound to flourish in its industry. The paper aims to find out how budgets, performance reports, ethics and accounting information will have an impact on Guillermo’s decision making.
Use of budgets and performance reports in decision making process
Guillermo has been presented with three options to choose from; the new technology, the choice of being a chain distributor and to dispose the coated furniture. Peavler (Para 1) comments that budgets are plans of action in a given business, without which, the business cannot have a driving force. Guillermo will need to conduct cost benefit analysis by the use of budgeted information in terms of labor hours and the value from the production to see if there is any gain to be realized. According to Horngren, Sundern, Stratton, Burgster and Schwartzberg (12), the spirit of management entails many activities that are include making planning and control decisions. Budgeted information will also aid him in making decision whether his involvement as a broker in distribution will be advantageous and profitable or not. The values that had been budgeted on the sale of the coated furniture will give a clear indication as to whether it will be viable to sell the furniture. The reports of performance on the income before tax that will be generated will act as a comparison between the three choices where selection will be made based on the investment that will be required, given that each option provides different incomes; for example, 46118, 213174 and 64041 for sticking to current method, adopting hi tech method and becoming a broker respectively.
Importance of ethics
According to Horngren et al (2008 p8), regulating the accounting standards makes sure that reliability and availability of the information provided by accountants abides the standards of ethics. Guillermo’s decisions have to be affected by integrity and ethics in many ways. In making decisions as whether to adopt the high technology mechanisms he must consider taking into account the right figures that would be involved in order to avoid unnecessary expenses. He will also need to analyze the amount of equity investment against debt before making a decision whether to employ the high technology in the manufacturing of furniture.
Guillermo’ accounting information must reflect truth and fair representation for taxation purposes, the computation of the relevant costs associated with brokerage and the possible cost of labor should form bases of ethics. In addition, he should think about the plight of the employees who will be rendered jobless if he opts to go hi tech. Finally, empowering the local community should be incorporated in the decision such that it will be unethical to adopt a method that will drain the benefits to a foreign company.
Accounting information that is relevant for Guillermo to consider before making decisions
According to Ullman (2006 p 28) the main objective of decision making is the solving of a problem and making sure that there is benefit to be realized from such a solution whether in shot term or long term. Information is considered relevant when it addresses the problem at hand and decision making entails choosing the best alternative from among many choices that are presented to the decision maker. For Guillermo, the relevant accounting information has to be the prediction of what is bound to improve the company in the face of the competitors by looking at incremental income before taxes and the expected cash flows from each investment options, taking into consideration the incremental cost of capital. Guillermo also has to put some check of the new investments he might consider engaging in and the associated initial outlays that have to be injected into these projects so as to arrive at the most rational decision.
Horngren et al (2008p 198) argue that when making decisions, managers should compare many available options to ensure right decision is made. The two options available, i.e. being a distributor or choose to employ the high technology of computer controlled laser lathe both have the same level of depreciation costs but unfortunately, it is possible that this cost is not budgeted in the cost of capital
Guillermo found himself in a more dynamic business industry than he could not fit without making strategic decisions that might have given him a breakthrough. Most business can find themselves in the state if they don’t evolve with the market changes. For instance he should have engaged in mergers or acquisitions, or even strategic partnership so as to survive the competition.
Horngren, Charles T. et al. Introduction to Management Accounting. NY: Prentice Hall. 2008.
Peavler, Rosemary. The Reasons for Business Budgets, planning, control and performance evaluation. 2009. Web.
Ullman, David. Making Robust Decisions: Decision Management for Technical, Business and Service. Bloomington: Trafford Publishing. 2006.
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