accounting Essay

1091 WordsMar 18, 20085 Pages
BUCKSTON LTD. Problems and Assumptions: After analyzing the information received form Buckston, it can be pointed out that Buckston has a main problem in cash conservation. The second issue is an accounting error where Buckston does not have a policy of depreciation on its land and buildings.. Another issue Buckston faces is profit margin problems where the office installation market locally is a reducing market. For the purpose of this analysis and calculation of factory profit margin ratio, it is assumed that installation overheads are already included in the cost of sale as Buckston’s main business is furniture manufacturing and installation. 3year period Profitability Analysis and Conclusions: Buckston ability to apply funds and assets to generate revenue are as effective as the trade average. However, when comparing Buckston’s ratios over the last two years with the Trade Association, it is evident that the efficiency of deploying funds to generate company earnings has decreased from 25.5% in 2004 to 19.5% in 2005 and to 13.7% in 2006. Ratios that illustrate how efficiently assets are employed to generate profits have also declined from 19.2% in 2004 to 14.4% in 2005 and to 9.1% in 2006. Such decline in the effectiveness in utilization of funds and assets show a decline in profitability over the years from 200 to 2006. - Considering the static margins in the office installation market, the calculated ratios show that Buckston’s factory profit margins are unsatisfactory as the company’s cost control system is less effective than the Trade Association. Such low margins could be the result of the introduction of the failing new costing system. The management of Buckston explained that this problem was being under discussion. The company’s ability to control cost and administrative expenses is also less effective than the Trade Association.

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