Question

Newtown Propane had sales of $1,550,000 last year on fixed assets of $395,000. Given that Newtown’s fixed assets were being used at only 95.00% of capacity, then the firm’s fixed asset turnover ratio (rounded to three decimal places) was???

x . Newtown was using its fixed assets at only 95.00% of capacity last year. How much sales could the firm have supported last year with its current level of fixed assets?

$1,386,842 $1,631,579 $1,794,737 $1,876,316

When you consider that Newtown’s fixed assets were being underused, its target fixed assets to sales ratio should be .

When you consider that Newtown’s fixed assets were being underutilized, Newtown must raise in additional fixed assets to support its expected sales next year.

Answer 1

a)Fixed asset turnover = Sales /Fixed asset

               = 1,550,000 / 395,000

               = 3.924 times

b)sales the firm could have supported last year with its current level of fixed assets: Last year sales /%capacity

              = 1,550,000/95%

              = 1,631,579

c)Target Fixed asset to sales ratio = Fixed asset /Sales

                 = 395000 /1,631,579

                 = .2421 or 24.21%

d)Next year sales is missing .