Question

Ratio 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. Round your answers to one decimal place.

Answer 1

Answer:

The fixed assets turnover ratio for year 1 is 3.2 times while for Year 2 it is 2.9 times.

Explanation:

The fixed assets turnover ratio tells how well the company is using its fixed assets to generate sales. The formula for Fixed assets turnover ratio is,

Fixed assets turnover = Net Sales  / Average Net Fixed Assets

Where,

Average Net Fixed Assets = (Net Fixed assets at beginning + Net Fixed assets at end) / 2

The Average net fixed assets for Year 1 and 2 are:

Year 1 =  (1450000 + 1600000) / 2  =  1525000

Year 2 = (1600000 + 2200000) / 2  = 1900000

The fixed assets turnover Ratio:

Year 1 = 4880000 / 1525000 = 3.2 times

Year 2 = 5510000 / 1900000 = 2.9 times