Question

Knowledge Check 01 The balance sheets of Davidson Corporation reported net fixed assets $620,000 at the end of Year 1 and $340,000 at the end of Year 2. Net sales for Year 2 totaled $1,440,000. What is the fixed-asset turnover ratio for Year 2? (Round your answer to 1 decimal number.)

Answer 1

The fixed-asset turnover ratio measures the efficiency with which a company generates sales from its fixed assets. It is calculated by dividing net sales by average net fixed assets.

Step-by-step explanation:

The fixed-asset turnover ratio measures the efficiency with which a company generates sales from its fixed assets. It is calculated by dividing net sales by average net fixed assets. In this case, we are given the net fixed assets at the end of Year 1 and Year 2. However, we need to calculate the average net fixed assets to determine the fixed-asset turnover ratio.

The formula for average net fixed assets is:

Average Net Fixed Assets = (Net Fixed Assets at the end of Year 1 + Net Fixed Assets at the end of Year 2) / 2

Once we have the average net fixed assets, we can calculate the fixed-asset turnover ratio for Year 2 by dividing net sales by average net fixed assets.

Fixed-Asset Turnover Ratio for Year 2 = Net Sales / Average Net Fixed Assets