Honey Industries has $4 billion in sales and $1.6 billion in fixed assets. Curre

Question

Honey Industries has $4 billion in sales and $1.6 billion in fixed assets. Currently, the company's fixed assets are operating at 90% of capacity.

1. What level of sales could Honey Industries have obtained if it had been operating at full capacity? Round your answer to the nearest cent.

$___________________

2. What is Honey's target fixed assets/Sales ratio? Round your answer to two decimal places.

36%

3. If Honey's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Round your answer to the nearest cent.

$______________

Explanation / Answer

1) Sales when operating at full capacity = 4x 100/90 = $4.44 billion Target fixed assets/sales ratio = 1.6/4.44 = 0.36 or 36% Sales when increased by 12 % = (1+12/100) x 4 = $4.48 billion Target fixed assets/sales ratio= 0.36= fixed assets/4.48 therefore fixed assets should be 4.48x0.36= $1.6128 billion increase in fixed assets should be 1.6128 - 1.6 = $0.0128 billion or $ 128 million

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