The cost allocation method utilized affects the amount of net property, plant, and equipment that is used in the computation of the ﬁxed asset turnover ratio.

Question

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The cost allocation method used for property, plant, and equipment affects the depreciation expense and the carrying amount of the fixed assets. These values are used in the computation of the fixed asset turnover ratio, which measures a company's efficiency in generating sales from its investment in fixed assets. Therefore, the choice of cost allocation method can impact the ratio result.

The Cost Allocation Method Utilized Affects the Amount of Net