2014 2013
Net 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 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:
Revenue………………………………
Fixed assets:
Beginning of year………………
End of year………………………
Average fixed assets………………
2014 2013
$1,668,000 $1,125,000
$ 670,000 $ 580,000
$ 720,000 $ 670,000
$ 695,000 $ 625,000
[($670,000 + $720,000) ÷ 2] [($580,000 + $670,000) ÷ 2]
Fixed asset turnover……………… 2.4 1.8
($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
trend in the efficiency of using fixed assets to generate sales.