Question

Williamson Industries has $3 billion in sales and $1.8 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 13%, 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

Requirement-(a), Full Capacity Sales

Full Capacity Sales = Current Sales / Percentage capacity of operation

= $3,00,00,00,000 / 0.95

= $3,157,894,736.84

“Full Capacity Sales = $3,157,894,736.84”

Requirement (b), Williamson's target fixed assets/sales ratio

Fixed Assets / Sales Ratio = [Fixed Assets / Sales] x 100

= [$1,800,000,000 / $3,157,894,737] x 100

= 57.00%

“Williamson's target fixed assets/sales ratio = 57.00%”

Requirement (c), Increase in fixed assets will the company need to meet its target fixed assets/sales ratio

New Sales = $3,390,000,000 [$3,000,000,000 x 113%]

Sales at full capacity = $3,157,894,736.84

Increase in fixed assets will the company need to meet its target fixed assets/sales ratio = [New sales – Sales at full capacity] x Fixed Asset to sales ratio

= [$3,390,000,000 - $3,157,894,736.84] x 57.00%

= $232,105,263.16 x 57.00%

= $132,300,000.00

“Increase in fixed assets = $132,300,000.00”