Q9-27 Computing asset turnover ratio B... [FREE SOLUTION]

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Chapter 19: Q9-27 (page 1074)

Computing asset turnover ratio Blackerby Photo reported the following figures on its December 31, 2018, income statement and balance sheet:
Net sales
$ 441,000
Dec. 31, 2018
Dec. 31, 2017
Cash
$ 31,000
$ 30,000
Accounts Receivable
$ 68,000
$ 65,000
Merchandise Inventory
$ 80,000
$ 79,000
Prepaid Expenses
$ 16,000
$ 5,000
Property, plant, and equipment, net
$ 175,000
$ 18,000
Compute the asset turnover ratio for 2018 Round to two decimal places

Short Answer

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Answer

The asset turnover ratio for the year 2018 is 1.55.

Step by step solution

Definition of Asset Turnover Ratio

The ratio determining the business entity's efficiency in using its assets to generate revenue is the asset turnover ratio. It compares the sales of the business entity with the average total assets.

Calculate Asset Turnover Ratio for Dec 31, 2018 year

$A s s e t t u r n o v e r r a t i o = \frac{N e t s a l e s}{A v e r a g e t o t a l a s s s e t s} = \frac{$ 441, 000}{$ 283, 500} = 1.55$

Working note:

Total assets:

Particular	Dec. 31, 2018	Dec. 31, 2017
Cash	$31,000	$30,000
Accounts Receivable	68,000	65,000
Merchandise Inventory	80,000	79,000
Prepaid Expenses	16,000	5,000
Property, plant, and equipment, net	175,000	18,000
Total assets	$370,000	$197,000

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Net sales	\( 441,000
	Dec. 31, 2018	Dec. 31, 2017
Cash	\) 31,000	\( 30,000
Accounts Receivable	\) 68,000	\( 65,000
Merchandise Inventory	\) 80,000	\( 79,000
Prepaid Expenses	\) 16,000	\( 5,000
Property, plant, and equipment, net	\) 175,000	$ 18,000

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 230,000	Number of parts	\)1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	3,000	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500

Activity	Budgeted Cost of Activity	Allocation Base	Predetermined Overhead Allocation Rate

Materials handling	\( 230,000	Number of parts	\)1.50
Assembly	3,200,000	Number of assembling direct labor hours	16.00
Finishing	150,000	Number of finished units*	3.00

Product	Total Units Produced	Total Direct materials Costs	Total Direct Labor Costs	Total Number of Parts	Total Assembling Direct Labor Hours

Standard bookcase	3,000	\(54,000	\)67,500	9,000	4,500
Unfinished bookcase	3,500	56,000	52,500	7,000	3,500

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Short Answer

Step by step solution

Definition of Asset Turnover Ratio

Calculate Asset Turnover Ratio for Dec 31, 2018 year

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