Question

lok company reports net sales of $5,389,000 for year 2 and $8,349,000 for year 3. end-of-year balances for total assets are year 1, $1,681,000; year 2, $1,836,000; and year 3, $1,953,000. (1) compute lok's total asset turnover for year 2 and year 3. (2) lok's competitor has a total asset turnover of 3.0 during year 3. is lok performing better or worse than its competitor on the basis of total asset turnover?

Answer 1

To compute Lok's total asset turnover for year 2 and year 3, divide the net sales by the average total assets for each year. Comparing Lok's total asset turnover with its competitor's, Lok is performing better.

Step-by-step explanation:

To compute Lok's total asset turnover for year 2 and year 3, we need to divide the net sales by the average total assets for each year. The formula for total asset turnover is: Net Sales / Average Total Assets. For year 2, the average total assets is (Year 1 + Year 2) / 2 = ($1,681,000 + $1,836,000) / 2 = $1,758,500. So, the total asset turnover for year 2 is $5,389,000 / $1,758,500 = 3.07. For year 3, the average total assets is (Year 2 + Year 3) / 2 = ($1,836,000 + $1,953,000) / 2 = $1,894,500. So, the total asset turnover for year 3 is $8,349,000 / $1,894,500 = 4.41.

Comparing Lok's total asset turnover of year 3 (4.41) with its competitor's total asset turnover (3.0), we can see that Lok is performing better than its competitor on the basis of total asset turnover.