Question

Fixed Asset Turnover Ratio Financial statement data for years ending December 31 for DePuy Company follow: Year 2 Year 1 Sales $5,510,000 $4,880,000 Fixed assets: Beginning of year 1,600,000 1,450,000 End of year 2,200,000 1,600,000

a. Determine the fixed asset turnover ratio for Year 1 and Year 2. Round your answers to one decimal place.
b. Does the change in the fixed asset turnover ratio from Year 1 to Year 2 indicate a favorable or an unfavorable change

Answer 1

(a) 3.2; 2.9

(b) Unfavorable change

Step-by-step explanation:

(a) In year 1:

Sales = $4,880,000

Beginning fixed assets = 1,450,000

Ending fixed assets = 1,600,000

Average fixed assets:

= (Beginning fixed assets + Ending fixed assets) ÷ 2

= (1,450,000 + 1,600,000) ÷ 2

= 3,050,000 ÷ 2

= 1,525,000

Fixed assets turnover ratio:

= Sales ÷ Average fixed asset

= $4,880,000 ÷ $1,525,000

= 3.2

In year 2:

Sales = $5,510,000

Beginning fixed assets = 1,600,000

Ending fixed assets = 2,200,000

Average fixed assets:

= (Beginning fixed assets + Ending fixed assets) ÷ 2

= (1,600,000 + 2,200,000) ÷ 2

= 3,050,000 ÷ 2

= 1,900,000

Fixed assets turnover ratio:

= Sales ÷ Average fixed asset

= $5,510,000 ÷ $1,900,000

= 2.9

(b) The fixed asset turnover ratio decreased in year 2 which shows an unfavorable change.