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Select financial statement data for two recent years for Davenport Company are as follows:
20Y5 20Y4
Sales $1,776,000 $1,020,000
Fixed assets: Beginning of year 720,000 640,000
End of year 760,000 720,000
a. Determine the fixed asset turnover ratio for 20Y4 and 20Y5. Round to one decimal place.
20Y5 20Y4
Fixed Asset Turnover Ratio
b. Does the change in the fixed asset turnover ratio from 20Y4 to 20Y5 indicate a favorable or an unfavorable change?

Respuesta :

Answer:

20Y5 = 2.4

20Y4 = 1.5

It is favourable

Explanation:

Fixed asset turnover = revenue / average net fixed assets

Average fixed asset =( fixed asset at the beginning of year + fixed asset at the end of year) / 2

20y5 = (720,000 + 760,000) / 2 = 740,000

20y4 = (720,000 + 640000) / 2 = 680,000

Fixed asset turnover = $1,776,000 / 740,000 = 2.4

$1,020,000 / 680,000 = 1.5

the higher the ratio, the better for a firm. it means that less fixed asset is generating higher revenues