Question

EXCESS CAPACITY

Williamson Industries has $8 billion in sales and $2.6 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.

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.
$ 8,421,052,631.57

What is Williamson's target fixed assets/sales ratio? Round your answer to two decimal places.
%

If Williamson's sales increase 8%, 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. Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.
$

Answer 1

If fixed assets had been working in full capacity, sales =$8,000,000,000/95*100 = $ 8,421,052,631.57

target fixed assets/sales ratio = fixed assets/ sales in full capacity = 2,600,000,000/8,421,052,631.57 = 30.88%

If Williamson's sales increase 8%, sales = 8,000,000,000 *1.08 = $8,640,000,000

Required level of sales the company need to meet its target fixed assets/sales ratio = target fixed asset/sales*projected sales = 30.88% * $8,640,000,000 = $2,668,032,000

increase in fixed assets will the company need to meet its target fixed assets/sales ratio = $(2,668,032,000-2,600,000,000) = $68,032,000