PE 10-9A Fixed asset turnover ratio

Financial statement data for years ending December 31 for Winnett Company are shown below.

                                                                                 2012      2011
Net sales                                                             $3,572,000 $3,526,000
Fixed assets:
Beginning of year                                                 900,000   820,000
End of year                                                           980,000   900,000
a. Determine the fixed asset turnover ratio for 2012 and 2011.
b. Does the change in the fixed asset turnover ratio from 2011 to 2012 indicate a favorable or an unfavorable trend?

Answer:
a. Fixed Asset Turnover:  
                                                                        2012                     2011  
Net sales...............................                      $3,572,000           $3,526,000
Fixed assets:  
Beginning of year...........                              $900,000              $820,000  
End of year......................                             $980,000               $900,000
Average fixed assets...........                          $940,000              $860,000
                                                [($900,000 + $980,000) ÷ 2] [($820,000 + $900,000) ÷ 2]
Fixed asset turnover ...........                              3.8                          4.1
                                                     ($3,572,000 ÷ $940,000) ($3,526,000 ÷ $860,000)

b. The decrease in the fixed asset turnover ratio from 4.1 to 3.8 indicates an unfavorable trend in the efficiency of using fixed assets to generate sales.

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