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Hodgkiss Mfg., Inc., is currently operating at only 96 percent of fixed asset capacity. Current sales...

Hodgkiss Mfg., Inc., is currently operating at only 96 percent of fixed asset capacity. Current sales are $520,000. Fixed assets are $410,000 and sales are projected to grow to $750,000. How much in new fixed assets are required to support this growth in sales? Assume the company wants to operate at full capacity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

New fixed assets

Expert Solution

First of all we have to find out FULL CAPACITY SALES

Fixed Assets-----current Sales

410000 ------520000(96%)

Full capacity sales)(% of capacity used)=current sales

Taking full capacity sales as X then,

(X)(0.96)=520000

X=520000/0.96

FULL CAPACITY SALES=541,666.666667

We have to grow sales to 750000 which is higher than full capacity sales so we have to additional assets

USING RATIOS FIXED ASSETS TO FULL CAPACITY SALES TO SOLVE FOR NEW FIXED ASSETS

Fixed Assets/Full Capacity Sales 410000/541,666.666667=X/750000

(541,666.666667)(x)=(410000)(750000) Dividing both sides by 541,666.666667

X=567,692.307692

OR

410000/541,666.666667 =0.75692307692 fixed asset is needed to get $1 sales

=0.75692307692*(750000)=567,692.307692 same answer

How much new fixed asset is required

410000----- 567,692we need 567,692-410000=$157692 fixed assets as additional.

jeff jeffy answered 2 years ago

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