Question 10.9: Fixed Asset Turnover Ratio Financial statement data for year......

Financial Accounting [EXP-43430]

Fixed Asset Turnover Ratio

Financial statement data for years ending December 31 for Broadwater Company are shown below.

a. Determine the fixed asset turnover ratio for 2012 and 2011.
b. Does the change in the fixed asset turnover ratio from 2011 to 2012 indicate a favorable or an unfavorable trend?

		2012	2011
Net sales		$2,862,000	$2,025,000
Fixed assets:
Beginning of year		750,000	600,000
End of year		840,000	750,000

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a. Fixed asset turnover:

b. The increase in the fixed asset turnover ratio from 3.0 to 3.6 indicates a favorable trend in the efficiency of using fixed assets to generate sales.

a.

		2012	2011
Net sales		$2,862,000	$2,025,000
Fixed assets:
Beginning of year		750,000	600,000
End of year		840,000	750,000
Average fixed assets		$795,000	$675,000
		[($750,000 + $840,000) ÷ 2]	[($600,000 + $750,000) ÷ 2]
Fixed asset turnover		3.6	3.0
		($2,862,000 ÷ $795,000)	($2,025,000 ÷ $675,000)

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