Earleton Manufacturing Company has $2 billion in sales and $0.6 billion in fixed
ID: 2730893 • Letter: E
Question
Earleton Manufacturing Company has $2 billion in sales and $0.6 billion in fixed assets. Currently, the company's fixed assets are operating at 85% of capacity.
a. What level of sales could Earleton have obtained if it had been operating at full capacity? Enter your answer in millions. For example, an answer of $5 billion should be entered as 5,000. Round your answer to two decimal places. $ million
b. What is Earleton's target fixed assets/sales ratio? Round your answer to two decimal places.
c. If Earleton's sales increase 40%, how large of an increase in fixed assets will the company need to meet its target fixed assets/sales ratio? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest cent.
Explanation / Answer
Part A
Sales at full capacity = current sales / capacity utilized
= 2 billion / 0.85
= 2.352941 billion
= 2.352.94 million
Part B
Fixed assets to sales ratio = fixed assets/ sales at full capacity
=600 million / 2,352.94 million
= 0.255 times
Part C
New total sales = 2,000 million x (1+0.40)
= 2,800million
Total Fixed assets required = new total sales x fixed assets to sales ratio
= 2,800 million x 0.255 million
= 714 .00 million
Increase in fixed assets required = new total fixed assets – existing fixed assets
= 714 million – 600 million
= 114 million
So in dollars it would be 114,000,357
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.