Question

EXCESS CAРАСІТY Earleton Manufacturing Company has $2 billion in sales and $500,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% of capacity a. What level of sales could Earleton have obtained if it had been operating at full capacity? Write out your answer completely. Round your answer to the nearest whole number b. What is Earleton's target fixed assets/sales ratio? Round your answer to two decimal places. c. If Earleton's sales increase 40%, 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 whole number $

Answer 1

Sales = $2 Billion

FA = $.5 Billion;

FA are operated at 80% capacity.

a. Full capacity sales= Actual sales/(% of capacity at which FA are operated)

= $2billion/0.80= $2.5 Billion or 250000000

b.Target FA/Sales ratio

= .5 Billion/$2.5 Billion = 20.00%

c

Sales Increase by 40% =2*1.40=2.8 billion

No increase in FA needed up to $2.5

Increase in FA = 20%*(2.8 billion - 2.5 billion)

Increase in fixed asset =60 Million or 60,000,000