2014 2013
Net 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 2014 and 2013.
b. Does the change in the fixed asset turnover ratio from 2013 to 2014 indicate a favorable or an unfavorable trend?
Answer:
a. Fixed Asset Turnover:
Net sales………………………………
Fixed assets:
Beginning of year………………
End of year………………………
Average fixed assets………………
2014 2013
$5,510,000 $4,880,000
$1,600,000 $1,450,000
$2,200,000 $1,600,000
$1,900,000 $1,525,000
Fixed asset turnover………………
[($1,600,000 + $2,200,000) ÷ 2] [($1,450,000 + $1,600,000) ÷ 2]
2.9 3.2
($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 trend in the efficiency of using fixed assets to generate sales.