Question

EXCESS CAPACITY What will not have and had c i r colely for a 25 in would be

Answer 1

Williamson Industries has $3 billion in sales and $1.9 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?

Level of sales of Williamson Industries if it is operating at full capacity = Actual Sales / present operating capacity

= $3 billion / 95%

= $3,000,000,000/0.95 = $3,157,894,736.84

2. What is Williamson's target fixed assets/sales ratio

Williamson's target fixed assets/sales ratio

= Actual fixed assets of company /Full capacity sales of company

= $1,900,000,000 / $3,157,894,736.84

= 0.6017 or 60.17%

3. If Williamson's sales increase 9%, how large of an increase in fixed assets will the company need to meet its target fixed assets/sales ratio?

Required level of fixed asset = (target fixed asset/Sales) * Projected sales

= (60.17%) * $3 billion * (1 +9%)

= 0.6017 * $3,270,000,000

=$1,967,450,000

Therefore an increase in fixed assets = Required level of fixed asset – initial fixed asset

= $1,967,450,000 - $1,900,000,000

=$67,450,000