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.
