Financial statement data for years ending December 31 for Davenport Company follow:

Financial statement data for years ending December 31 for Davenport Company follow:

                                      Year 2 | Year 1 

Sales                     $1,668,000 | $1,125,000

Fixed assets:

 Beginning of year      670,000 | 580,000

 End of year                720,000 | 670,000

a. Determine the fixed asset turnover ratio for Year 1 and Year 2.

b. Does the change in the fixed asset turnover ratio from Year 1 to Year 2 indicate a favorable or an unfavorable change?

Answer:

a. Fixed Asset Turnover: Sales................................. Fixed assets: Beginning of year............  End of year..................... Average fixed assets............ Fixed asset turnover............ Year 2 Year 1 $1,668,000 $1,125,000 ($1,668,000 ÷ $695,000) ($1,125,000 ÷ $625,000) b. The increase in the fixed asset turnover ratio from 1.8 to 2.4 indicates a favorable change in the efficiency of using fixed assets to generate sales.