Question

EXCESS CAPACITY

Williamson Industries has $6 billion in sales and $1.4 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 8%, 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

Answer to a : - What level of sales could Williamson Industries have obtained if it had been operating at full capacity?

Given that Sales = $ 6,000,000,000

and Fixed Assets = $ 1,400,000,000

This Fixed Assets are oprtaing at 95% Capacity.

Therefore level of Sales in order to operate at full capacity = Existing Sales/Existing Capacity Operations

= $ 6,000,000,000/95%

=$ 6315789473.68

So if the sales of the company is $ 6315789473.68 the company would be operating at full capacity

Answer to : - What is Williamson's target fixed assets/sales ratio?

Let us analyse the current Fixed Asset Trunover Ratio =Sales /Fixed Assets

=$ 6,000,000,000 /$ 1,400,000,000

=4.28 Times

Now the target should be to operate at full capacity

Target Fixed Assets to Sales ratio = Sales At full Capacity utilization/ Fixed Assets

=$ 6315789473.68/ $ 1,400,000,000

4.51 times.

Answer to : - If Williamson's sales increase 8%, how large of an increase in fixed assets will the company need to meet its target fixed assets/sales ratio?

Given That Sales Increase by 8%.

Therfore Revised Sales =$ 6,000,000,000 *1.08

=$ 6480000000

Now, inorder to meeth the required target ratio computed above we need to find out the fixed assets of the company.

Taregt Fixed Assets Turnover Ratio=Increased Sales/Fixed Assets

4.51 (As computed Above)=$6480000000/Fixed Assets

Therefore Fixed Assets = 1436807095.34

Now therefore fixed assets needs to be increased by = $1436807095.34 - $1,400,000,000

=$ 36807095.34