Question

Williamson Industries has $3 billion in sales and $1.6 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

1. What level of sales could Williamson Industries have obtained if it had been operating at full capacity? Write out your answer completely. For example, 25 billion should be entered as 25,000,000,000. Round your answer to the nearest cent.
            $
2. 
   
3. What is Williamson's target fixed assets/sales ratio? Round your answer to two decimal places.
         %
4. 
   
5. If Williamson's sales increase 15%, 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, 25 billion should be entered as 25,000,000,000. Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.
             $

Answer 1

a)Sales if operating at full capacity = Current sales / Current capacity

                   = 3,000,000,000 /.95

                 = 3,157,894,736.84

b)Target Fixed asset to sales ratio = Fixed asset /Sales if operating at full capacitY

                         = 1,600,000,000 /3,157,894,736.84

                         = .5066667 or .5067 or 50.67% rounded

c)Increased sales = 3,000,000,000(1+.15)= 3,450,000,000

Target Fixed asset to sales ratio =Fixed asset /Sales

.5066667 = Fixed asset / 3,450,000,000

Fixed asset desired = 3,450,000,000 * .5066667

                   =$ 1,748,000,115

Increase in asset = Fixed asset desired -Current Fixed asset

                = 1,748,000,115- 1,600,000,000

              = $ 148,000,115