UUP Inc.is very conservatively managed and nothing ever changes - their sales are constant over time, the collection periods stay the same, and the firm has not invested in any new assets.An investor is puzzled - having found that the fixed asset turnover rate is changing over time.How can the apparent efficiency with which the firm uses its assets be changing if all other items are not changing?
A)This observation is impossible; they must have miscalculated something.
B)This observation is possible; the fixed asset turnover must increase in this case due to depreciation.
C)This observation is possible; the fixed asset turnover must decrease in this case due to depreciation.
D)This observation is possible; they should look at net income and not sales - it is a better measure of the firm's efficiency and productivity.

Question

Quizplus · Accepted Answer

The fixed asset turnover rate is calculated by dividing sales by the book value of fixed assets. As fixed assets depreciate over time, the book value decreases, which increases the turnover rate. Even though all other items remain constant, the decrease in book value causes an apparent increase in efficiency with which the firm uses its assets.

UUP IncIs Very Conservatively Managed and Nothing Ever Changes - Their