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Fixed Asset Turnover: Returns, Allowances, and Assets

During 2011, Company X sells 500,000 units for $8 each. Sales discounts are $100,000 and sales returns and allowances are $300,000. The company reported a total of $710,000 in fixed assets on January 1, 2011 and $890,000 in fixed assets on December 31, 2011.
a. Calculate net sales revenue.
b. Calculate average fixed assets.
c. Calculate the fixed asset turnover ratio.
d. Assume the 2011 fixed asset turnover ratio was lower than the 2010 ratio. Describe one circumstance where this change would indicate bad news and one circumstance where this change would be consistent with good news.

Solution Preview

a) To calculate net sales revenue, we calculate as follows:

500,000 units x $8 = 4,000,000
Returns & allowances - 300,000
Discounts - 100,000
Total net sales revenue = 3,600,000

b) To calculate average fixed assets, we calculate as follows:

Current year fixed assets 890,000 + previous yr. fixed ...

Solution Summary

This solution calculates net sales revenue, average fixed assets, the fixed asset turnover ratio, and circumstances where changes in assets would indicate positive or negative news. All calculations and answers are fully explained.