Guillermo Furniture Accounting Decisions

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Guillermo Furniture - Accounting Decisions In order to Guillermo to identify to make an informed decision about the direction to take his company they need to understand the audiences, purposes and natures of financial statements and managerial reports. In addition to this, the scope of the presentation will explain the use of financial accounting information so Guillermo can make those informed and ethical business decisions. Break Even Analysis At the heart of break-even point or break-even analysis is the relationship between expenses and revenues. It is critical to know how expenses will change as sales increase or decrease. Some expenses will increase as sales increase, whereas some expenses will not change as sales increase or decrease. Variable and Absorption Costing At least two methods can be used in manufacturing companies to value units of product for accounting purposes—absorption costing and variable costing. These methods differ only in how they treat fixed manufacturing overhead costs. Variable costing includes only variable production costs in product costs. Direct materials, direct labor and variable manufacturing overhead costs would ordinarily be included in product costs under variable costing. Fixed manufacturing overhead is not treated as a product cost under this method. Rather, fixed manufacturing overhead is treated as a period cost and is charged against income each period. Absorption costing treats all production costs as product costs, regardless of whether they are variable or fixed. Under absorption costing, a portion of fixed manufacturing overhead is allocated to each unit of product. Variance analysis A variance analysis details and evaluates the difference between planned and actual results. A variance analysis is used to provide a comparison of budgeted costs with the actual costs or a comparison of the

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