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

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.

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 $5,510,000 $4,880,000 ($5,510,000 ÷ $1,900,000) ($4,880,000 ÷ $1,525,000) b. The decrease in the fixed asset turnover ratio from 3.2 to 2.9 indicates an unfavorable change in the efficiency of using fixed assets to generate sales. 

Financial statement data for years ending December 31 for Chiro-Solutions Company follow:

Financial statement data for years ending December 31 for Chiro-Solutions Company follow:

                                    20Y2 | 20Y1

Sales                 $2,912,000 | $2,958,000

Accounts receivable:

Beginning of year   300,000 | 280,000

End of year             340,000 | 300,000

a. Determine the accounts receivable turnover for 20Y2 and 20Y1.

b. Determine the days’ sales in receivables for 20Y2 and 20Y1. Use 365 days and round to one decimal place.

c. Does the change in accounts receivable turnover and the days’ sales in receivables from 20Y1 to 20Y2 indicate a favorable or unfavorable change?

Answer:

a. Sales.................................... Accounts receivable: Beginning of year...............  End of year........................  Average accts. receivable......  Accts. receivable turnover......  b. Sales....................................  Average daily sales...............  Average accts. receivable......   Days’ sales in receivables......  9.1 [($280,000 + $300,000) ÷ 2] 10.2 $ 290,000 [($300,000 + $340,000) ÷ 2] $ 340,000 $ 300,000 $ 320,000 $ 320,000 $ 290,000 $ 7,978.1 $ 8,104.1 ($2,912,000 ÷ 365 days) ($2,958,000 ÷ 365 days) ($320,000 ÷ $7,978.1) ($290,000 ÷ $8,104.1) c. The decrease in the accounts receivable turnover from 10.2 to 9.1 and the increase in the days’ sales in receivables from 35.8 days to 40.1 days indicate unfavorable changes in the efficiency of collecting receivables.