Rodolfo Furniture Store Essay

Custom Student Mr. Teacher ENG 1001-04 7 June 2016

Rodolfo Furniture Store

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.

Current situation

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|

Hi-Tech situation
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|

Broker situation
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.

Budget Analysis| Current| Hi-Tech| Broker| BEP| $1,498,800| $1,835,650|
$2,189,229| ROI| 2.0%| 9.2%| 2.8%| Residual Income| -$74,599| $22,354| -$63,588|

The break-even margin provides an understanding of the relationship between the costs, fixed costs and profitability. In general, the BEP was influenced directly by the total amount of fixed costs that in combination with contribution margin will allow managers at Rodolfo to determine the margin of safety. Although the margin of safety for ‘Current” is lower than the other two options, the return of investment (ROI) is considerable lower, in addition to a negative residual income. This will result in Rodolfo’s inability to meet the business financial needs and carry over a deficit in the budget. The “Broker” option displays a non less favorable situation for the business.

The variable costs burden for both options is considerable high and resource consuming representing an average of 78.2% in relation to the total sales. Now looking at the final option, Hi-Tech, the variable costs with respect to the total sales represent a 62% giving Rodolfo a higher contribution margin (CM) of 38% in contrast with the other two options, 15% and 28% respectively this would be his best alternative. Even with this option Rodolfo has to maintain control over his fixed cost and the relationship between them and the variable cost. This option is going to require a heavy investment that creates a challenge. Based on Rodolfo’s success in controlling his cost he will be able to maintain or raise his prices.

Even though at this point the High Tech is the most profitable option of the three, the high fixed costs, majorly influence by the high depreciation costs must be addressed to make it a more scalable business model. Managers must be fully cognizant on the effects the variable and fixed costs have over the bottom-line performance of budgets and forecasting of changes with respect to business decisions such as the one presented by Rodolfo’s scenario. Bottom line is that the Rodolfo’s managers must be carefully analyzing this information to better manage and improve the business profitability. This database decision will allow Rodolfo too effectively direct and adapt to the constant economic, financial, and competitors changes.

The best control system that Rodolfo can implement to ensure that his company is directed and control to achieve and exceed these organizational goals is to develop a company budget. A company budget not only participative from all functions but also that it holds its department head accountable for any possible deviation from the plan budget. This budget has to have a solid sales forecast as this will become on the backbone of the total budget. Every department director has to comply with the initiatives and plans to support and deliver the budget figures. No one is authorized to Pad any area of the budget. This budget has to be reviewed and discussed on a monthly basis. Each line of it has to be challenged in terms of possible deviations, both positives as up-sides or negative as liabilities. If at any time Rodolfo identifies any negative deviation or liability, an action plan has to be presented to ensure that we comeback to plan before the next period.

Now Rodolfo can implement a well structure and followed budget. This is the best performance tool available for his team in the market. This will allow Rodolfo to delegate to his directorship to self-measure the progress or lack of their areas to ensure that Rodolfo’s company achieve and exceed the company goals. At the same time Rodolfo will also have visibility through a balance scorecard on how each department is moving against each of their projected tasks. With the implementation of this new technology Rodolfo will still be in control while also allow him to delegate more to his team. This will offer Rodolfo the opportunity to focus on growing other segments of the furniture business capitalizing the growth potential of this new investment.

Rodolfo has to evolve with the competition and the technology. He has to maximize this investment and search for the alternatives to capitalize from his technology. This will provide Rodolfo a better grasp of his financial statements and what may impact the favorably or unfavorably. Now he can better manage his cost structure, his cost behavior, and his cost allocation. He has a well plan and implemented budget that may allow him to better monitor his business progress toward exceeding his company goals.

Horngren, C. T. (2008). • Introduction to Management Accounting (14th ed.). Upper
Saddle River, NJ: Pearson Education, Inc.

I certify that the attached paper is my original work. I affirm that any section of the paper has been submitted previously is attributed and cited as such, and his paper has not been submitted by anyone else. I confirm that I have cited all sources from which I used language, ideas, and information, whether quoted verbatim paraphrased. Any assistance I received while producing this paper has been acknowledged in the References section. I have obtained written permission or have included a release from the copyright holder for any trademarked material, logos, images from the Internet, or other sources. I further agree that my name typed on the line below is intended to have, and shall have, the same validity as my handwritten signature.

Free Rodolfo Furniture Store Essay Sample


  • Subject:

  • University/College: University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 7 June 2016

  • Words:

  • Pages:

Let us write you a custom essay sample on Rodolfo Furniture Store

for only $16.38 $13.9/page

your testimonials