Question

Determine the fixed asset turnover ratio for Year 1 and Year 2. [Round to two decimal places] ​ Year 2 Year 1 Sale 2,410,000 1,450,000 Fixed Assets: Beginning of year 640,000 450,000 End of year 760,000 520,000

Answer 1

The fixed asset turnover ratio for Year 1 is 2.99, and for Year 2 it is 3.44, after calculating the average fixed assets for each year and dividing the respective year's sales by that average.

Step-by-step explanation:

The fixed asset turnover ratio is a performance metric that shows how efficiently a company uses its fixed assets to generate sales. This ratio is calculated by dividing the company's net sales by its average fixed assets for the period. To find the average fixed assets, you simply average the value of fixed assets at the beginning and end of the period.

• Year 1 Fixed Asset Turnover Ratio Calculation:

Average Fixed Assets for Year 1 = (Beginning Fixed Assets + Ending Fixed Assets) / 2

= (450,000 + 520,000) / 2

= 485,000

Fixed Asset Turnover Ratio for Year 1 = Sales / Average Fixed Assets

= 1,450,000 / 485,000

= 2.9897 or rounded to 2.99

• Year 2 Fixed Asset Turnover Ratio Calculation:

Average Fixed Assets for Year 2 = (Beginning Fixed Assets + Ending Fixed Assets) / 2

= (640,000 + 760,000) / 2

= 700,000

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

= 2,410,000 / 700,000

= 3.4429 or rounded to 3.44