Question

Earleton Manufacturing Company has $3 billion in sales and $606,000,000 in fixed assets. Currently, the company's fixed assets are operating at 85% of capacity.

1. What level of sales could Earleton have obtained if it had been operating at full capacity? Write out your answers completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar.
   $    
2. 
   
3. What is Earleton's target fixed assets/sales ratio? Do not round intermediate calculations. Round your answer to two decimal places.
     %
4. 
   
5. If Earleton's sales increase 25%, 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 dollar.
   $  

Answer 1

a) If Earleton Operates at full capacity.

Let the sales value at 100% Capacity is X

Operating Capacity	Sales value
85%	$ 3 Billion
100%	X

By Doing Criss cross multiplication , we get

X = 3*100/85

X = 3.52941176

So Sales is $ 35294,11764.

c) Assuming that the firm want to operate at full capacity.

So Target Fixed Assets/Sales ratio = $ 6060,00000/$ 35294,11764

= 0.1717

That means for generating 1 rupee of sale 0.1717 fixed Asset needed

e) If firm increases sales by 25%

Then the sales = $ 3 billion*1.25 = $ 3.75 Billions

Then the sales will be $ 37500,00000

Required fixed Assets = $ 37500,00000*0.1717

= $ 643,875000

S.No	Particulars	Amount
A	Required Fixed Assets	$643,875,000
B	less: Existing Fixed Assets	$606,000,000
C	Additional fixed Assets needed	$37,875,000

So $ 378,75000 worth of Assets is needed to maintain the same fixed Assets/sales ratio to meet the increased sales.