Question

Newport Company has sales of $2,025,000 for the current year. The book value of its fixed assets at the beginning of the year was $550,000 and at the end of the year was $800,000. The fixed asset turnover ratio for Newport is:______
a) 3.6
b) 3.0
c) 2.5
d) 3.7

Answer 1

Answer:

b) 3.0

Explanation:

It is ratio of sales to the fixed asset of a company. It shows that how effectively the company using its fixed assets to generate the revenue. It measures the efficiency of the fixed asset in making sales.

It uses the net sales value and the average net fixed assets of the company.

Net Sales =

Average Fixed Assets = ($800,000 + $550,000) / 2 = $1,350,000 / 2 = $675,000

Fixed Asset Turnover = Net Sales / Average Net Fixed Assets

Fixed Asset Turnover = 2,025,000 / $675,000 = 3 times