Charbucks has net income of $50,000, sales of $250,000, beginning fixed assets of $150,000 and ending fixed assets of $200,000. The fixed asset turnover is (rounded)1.4.

Question

Quizplus · Accepted Answer

Fixed asset turnover = Sales / Average fixed assets

Average fixed assets = (Beginning fixed assets + Ending fixed assets) / 2 = ($150,000 + $200,000) / 2 = $175,000

Fixed asset turnover = $250,000 / $175,000 = 1.4286 (rounded to 1.4)

Since the fixed asset turnover is greater than 1, it means that the company is generating more sales per dollar of fixed assets. Therefore, it is reasonable to assume that Charbucks is effectively managing its fixed assets to generate profits.

Charbucks Has Net Income of $50,000, Sales of $250,000, Beginning