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FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft, sorting and handling facilities, delivery vehicles, and information technology. The sales and average book value of fixed assets reported on recent financial statements for each company were as follows: a. Compute the fixed asset turnover ratio for each company. Round to one decimal place. b. Which company appears more efficient in using fixed assets? c. Interpret the meaning of the ratio for the more efficient company.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 10, Problem 25E
Textbook Problem
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FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft, sorting and handling facilities, delivery vehicles, and information technology. The sales and average book value of fixed assets reported on recent financial statements for each company were as follows:

Chapter 10, Problem 25E, FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The , example  1

  1. a. Compute the fixed asset turnover ratio for each company. Round to one decimal place.
  2. b. Which company appears more efficient in using fixed assets?
  3. c. Chapter 10, Problem 25E, FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The , example  2 Interpret the meaning of the ratio for the more efficient company.

a.

To determine

Determine the fixed asset turnover ratio of each company.

Explanation of Solution

Fixed Asset turnover: It is a ratio that measures the productive capacity of the fixed assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total fixed assets. The following is the formula to calculate the ratio:

FixedAsset turnover =SalesAverage totalfixed assets

Calculate the fixed asset turnover ratio:

For Company F

Sales= $47,453 millions

Total average fixed assets= $20,213 millions

  FixedAssets Turnover=SalesAverage FixedAssets=$47,453$20,213=2

b.

To determine

Find which company appears more efficient in using fixed assets.

c.

To determine

Intrpret the meaning of the ratio for the more efficient company.

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Financial Accounting
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