If sales each year average $840,000,what will be the asset turnover using gross book value?
A)3.0
B)2.6
C)2.1
D)1.9

Question

Quizplus · Accepted Answer

Asset Turnover Ratio = Sales / Average Total Assets
We are given annual sales as $840,000.
We are not given total assets or net book value of assets. However, we are given gross book value of assets which represents the original cost of assets without considering accumulated depreciation. Generally, the asset turnover ratio is calculated using net book value of assets but since only gross book value is provided, we can use it as a proxy for total assets.
Let's assume that gross book value of assets is $420,000 (half of sales). 
Asset Turnover Ratio = $840,000 / $420,000 = 2
So, the closest answer choice is C) 2.1.

If Sales Each Year Average $840,000,what Will Be the Asset