Question

Williamson Industries has $3 billion in sales and $1.156 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

a. 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.

b. What is Williamson's target fixed assets/sales ratio? Do not round intermediate calculations. Round your answer to two decimal places.

c. If Williamson's sales increase 14%, 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. Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Requirement-(a), Full Capacity Sales

Full Capacity Sales = Current Sales / Percentage capacity of operation

= $3,000,000,000.00 / 0.95

= $3,157,894,736.84

Requirement (b), Target fixed assets/sales ratio

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

= [$1,156,000,000.00 / $3,157,894,736.84] x 100

= 36.61%

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

New Sales = $3,420,000,000.00 [$3,000,000,000 x 114%]

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

Therefore, the 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

= [$3,420,000,000.00 - $3,157,894,736.84] x 36.61%

= $262,105,263.16 x 36.61%

= $95,956,736.84