An increase in inventory and plant and equipment during the year while sales remain constant will cause the fixed asset turnover ratio to increase.

Question

Quizplus · Accepted Answer

Fixed asset turnover ratio is calculated as Sales/Net Fixed Assets. If sales remain constant and inventory and plant and equipment increase, this will increase the denominator (Net Fixed Assets) and therefore decrease the ratio, not increase it.

An Increase in Inventory and Plant and Equipment During the Year