Question

Newtown Propane had sales of $1,550,000 last year on fixed assets of $345,000. Given that Newtown’s fixed assets were being used at only 93% of capacity, then the firm’s fixed asset turnover ratio was ___________.

A.) 4.493x C.) 3.81905x

B.) 4.26835x D.) 4.71765x

How much sales could Newtown Propane have supported with its current level of fixed assets?

A.) $1,333,334

B.) $1,916,667

C.) $1,666,667

D.) $1,583,334

When you consider that Newtown’s fixed assets were being underused, what should be the firm’s target fixed assets to sales ratio?

A.) 19.67%

B.) 23.80%

C.) 20.70%

D.) 16.56%

Suppose Newtown is forecasting sales growth of 20% for this year. If existing and new fixed assets are used at 100% capacity, the firm’s expected fixed assets turnover ratio for this year is____________?

A.) 4.589x C.) 3.865x

B.) 5.556x D.) 4.831x

Answer 1

Q-a)

- Fixed Asset Turnover = Sales/Fixed Asset

Fixed Asset Turnover = $1550,000/$345,000

Fixed Asset Turnover = 4.493 times

Option A

Q-b)

Sales = $1550,000

Fixed assets were being used at only 93% of capacity.

Fixed Assets level to supported with its current level of fixed assets= $1550,000/93%

= $1666,667

Option C

Q-c)

sales Level if Fixed asset are fullyused = $1666,667

Firm’s target fixed assets to sales ratio = Fixed Assets/Fullyused Sales = $345,000/$1666,667

Firm’s target fixed assets to sales ratio = $20.70%

Q-d)

Sales Level if Fixed asset are fullyused = $1666,667

New sales after 20% growth and used in 100% capacity = $1666,667(1+20%) = $2,000,000

New Fixed Assets after 20% increase = $345,000(1+20%) = $414,000

- Fixed Asset Turnover = Sales/Fixed Asset

Fixed Asset Turnover = $2000,000/$414,000

Fixed Asset Turnover = 4.831 times