EXCESS CAPACITY Problem 16.13 : Not Answered carieton ianuracturing Company has
ID: 2802233 • Letter: E
Question
EXCESS CAPACITY Problem 16.13 : Not Answered carieton ianuracturing Company has $3 billion in sales and $500,000,000 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? Write out your answer completely. Round your answer to the nearest whole number. b. What is Earleton's target fixed assets/sales ratio? Round your answer to two decimal places. C. If Earleton's sales increase 35%, 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. Do not round intermediate calculations. Round your answer to the nearest whole number.Explanation / Answer
Answer a.
Sales at 85% capacity = Sales at 100% Capacity * 85%
$3,000,000,000 = Sales at 100% Capacity * 85%
Sales at 100% Capacity = $3,529,411,765
Answer b.
Fixed Assets / Sales Ratio = Fixed Assets / Sales at 85% Capacity
Fixed Assets / Sales Ratio = $500,000,000 / $3,000,000,000
Fixed Assets / Sales Ratio = 0.1667 = 16.67%
Answer c.
Increase in Sales = 35% * Sales at 85% Capacity
Increase in Sales = 35% * $3,000,000,000
Increase in Sales = $1,050,000,000
New Sales = $3,000,000,000 + $1,050,000,000
New Sales = $4,050,000,000
Fixed Assets / Sales Ratio = 16.67%
New Fixed Assets / New Sales = 16.67%
New Fixed Assets = $4,050,000,000 * 16.67%
New Fixed Assets = $675,000,000
Increase in Fixed Assets = $675,000,000 - $500,000,000
Increase in Fixed Assets = $175,000,000
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