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7 August, 08:29

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

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  1. 7 August, 08:53
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    (a) 3.2; 2.9

    (b) Unfavorable change

    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.
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