MINDTAP Ch. 12: Hw2 Attempts: 5. Excess capacity adjustments water and Power Co.
ID: 2810670 • Letter: M
Question
MINDTAP Ch. 12: Hw2 Attempts: 5. Excess capacity adjustments water and Power Co. (had sales of $1,790 000 last year on fixed assets of smooo. Gven that wanted Score:14 assets were being used at only 93% o/capacity, then the frm's bed asset turnover ratio was How much sales could Water and Power Co. (W8P) have supported with its ourrent level of fixed assets? O $2,213,441 O $2,020,968 $1,732,258 $1,924,731 When you consider sales ratio? that WaP's fixed assets were being underused, what should be the firm's target fixed assets to 23.65% 19.74% O 18.75% 22.70% wap is forecasting sales gowth of 18% for this year. I capacity, the frm's expected fixed-assets turnover ratio for this year is existing and new fied assets are used at 100% 4.052x 4.305x 5065 6.078x Graded 26Explanation / Answer
1. Fixed Assets Turnover Ratio = Sales/Fixed Assets
= 380,000/1,790,000 = 0.2123, or 21.23%
2. To nd out how much sales a rm could support with its current underused xed assets, divide the current sales by the percentage of use, as follows:
Full Capacity Sales = Actual Sales / Percentage Capacity Used
= 1,790,000 / 0.93 = $1,924,731.18
Hence, Option D is correct.
3. the rm's target xed assets to sales ratio is calculated as follows:
= Actual Fixed Assets / Full Capacity Sales
= 380,000 / 1,924,731.18 = .1974, or 19.74%
Hence, Option B is correct.
4. Projected Sales = 1,790,000 x 1.18 = $2,112,200
Required Level of fixed assets = [380,000/1,924,731.18] x 2,112,000 = $417,012
Fixed-Asset Turnover Ratio = Sales/ Fixed Assets
= 2,112,200 / 417,012 = 5.065x
Hence, Option C is correct.
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