Earleton Manufacturing Company has $2 billion in sales and $600,000,000 in fixed assets. Currently, the company's fixed assets are operating at 85% of capacity.
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.
$ What is Earleton's target fixed assets/sales ratio? Round your answer to two decimal places.
% 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.
a. Sales = $2,000,000,000; FA = $600,000,000; FA are operated at 85% capacity.
Full capacity sales= Actual sales/(% of capacity at which FA are operated)
= $2,000,000,000/0.85= $2,352, 941,176.47
=$2, 352,941,177(aprox. round off)
b. Target FA/Sales ratio= $600,000,000/$2,352, 941,176.47
= 0.255= 25.5%.
c. Sales increase 40%;
Sales= $2,000,000,000 *1.40 = $2,800,000,000.
No increase in FA needed up to $2,352,941, 176.47 in sales.
But since Sales will increase to $2,800,000, 000 we need to increase FA by :
FA = 0.255($2,800,000,000 - $2,352, 941,176.47)
= 0.255 * $447,058,823.53
= $114,000,000
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