Guillermo Furniture is a mid-grade to high-end sofa furniture manufacturer that operates in Sonora, Mexico. Guillermo Navallez is the sole owner of Guillermo Furniture and is looking at options that will provide the greatest return on his investment (University of Phoenix, n.d). Guillermo Furniture is looking at two options which include, (1) purchasing high-end machinery to reduce labor and production costs and (2) the possibility of becoming a distributor for a manufacturer that is trying to move into the North American market (University of Phoenix, n.d).
After reviewing the information, relevant information that must be considered is financial and non-financial factors that will influence what information will be deemed relevant in each project (Edmonds, 2007). Mr. Navallez is looking to increase his profits through one of the business ventures without jeopardizing the time spent with his family and increasing managerial responsibilities (University of Phoenix, n.d). Factors that will be taken into consideration are machinery costs, training, and transfer of experienced employees, competition, production, labor, and overhead costs.
In the first project, the purchase of high-end machinery appears to be a feasible opportunity but we must first consider all relevant information. The costs of purchasing the machinery are immense given the technological advancement and capabilities of the operation. With the purchase of the equipment, Mr. Navallez will have to consider the costs to train new employees or possibly hire and pay for the costs to transfer employees were the machinery is currently in use.
The costs to hire experiences employees must be taken into consideration if this route is taken rather than training local employees given the constraint of time to place the machinery in operation. Either case, the costs will be included into the cash outflows in determining the net present value of the project. In addition, this will affect the time that the furniture company will be closed or unable to operate while the machinery is being set up therefore reducing cash inflows that will be taken into the calculation of the net present value.
Although cash value cannot be given to the competition around the area that is growing, this is relevant information that must be considered given the economy. If there are a large number of competitors in the area, will purchasing the equipment generate enough income from interested buyers?
When looking at the income information data sheets, we look that there are other costs that must be taken into in addition to the above mention information for consideration such as the materials, labor, production and overhead costs. In this project, production will be increase by 50%. In addition, direct labor costs remain the same, labor time decreases while labor costs per unit increases. Price per unit is reduced because of increased supply given the capabilities of the machinery. Plant overhead costs however and increased yearly in all areas except benefits because labor is reduced because of the machinery. But overall this project seeks to earn $219,357 net income before taxes (University of Phoenix, n.d).
In the second project option, Mr. Navallez will have the opportunity to become a distributor while still producing his high-end furniture. However, this option has the factor to reduce his time with his family given the increase managerial responsibilities and obstacles of trying to meet the requirements of becoming a distributor for a foreign producer (University of Phoenix, n.d).What may be relevant in one case might not be a factor for another but in this project, Mr. Navallez must consider if the reduction in family time make up for potential profits.
In addition, labor laws as well as federal and international requirements must be met in order to become a distributor for a foreign producer along with import taxes. When reviewing the data sheets,