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Guillermo Furniture Store Flex Budget

Guillermo Furniture Store Flex Budget - Guillermo Furniture...

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Guillermo Furniture Store Flex Budget University of Phoenix Introduction Cost relationship behaviors Areas of business decisions that are of great importance to discuss are how the cost behaviors at Guillermo can affect the decision making prerogatives and strategies of the managers. These cost relationships and behaviors can affect manager’s decisions and prerogatives in a variety of ways. Cost behaviors are a way of describing the changes and receptiveness that costs have in relation to changes in production and sales. In order to look at this data you must also make sure to have a relevant range to which you can compare changes within the sales and production numbers. These relationships have a wealth of knowledge and valuable information that help a business better understand its operations, and can also help with determining CVP (cost volume profit) relationships. They can also help with budgets, forecasting, and product differentiation/effectiveness. A big part of cost behavior and relationship analysis is how Guillermo chooses to allocate costs. The more traceable and allocate-able a cost is, the better it is when it comes time for accountants to do their jobs. Costs are mainly allocated into four groups, service departments, producing departments, products and services, and customers, as well as being broken down into direct and indirect costs. Once costs have been allocated, the managers can begin to watch and see cost relationships, and how they behave in each of their departments/ situations. It is important to keep track of the costs for their products and services, and there is a need to keep an eye on their service and producing departments as well, especially since they can contribute to the costs of the products and services themselves. Also, it is probably important to ensure that customer profitability and costs are being monitored. Once it is monitored for a period of time managers will be able to determine cost drivers, which will allow them to discover what effect the drivers have on other variables, showing them a clear cost relationship. Cost drivers are often cost allocation bases because it is very easy to trace the relationship in these cases, such as rent or depreciation of equipment. A good way for managers to determine their decision making behavior is to first make sure they establish guidelines or rules so that everyone can understand and see the allocations and relationships effectively and can be on the same page. It is also helpful for managers to make sure they are keeping their variable and their fixed costs separate. Once this has been done it will be easier to evaluate each department based on their cost behaviors, budgets, and overall performance.
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