Question

Williamson Industries has $6 billion in sales and $1 billion in fixed assets. Currently, the company's fixed assets are operating at 90% 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? Round your answer to two decimal places. ____%

c. If Williamson's sales increase 13%, 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

Given

Williamson Industries is currently operating at 90% capacity with sales being $ 6 billion and fixed assets being $ 1 billion

a) For full capacity the sales should have been = 6,000,000,000 / 0.90

Full capacity sales = $6,666,666,666.67

b) Target fixed asset / sales ratio = Fixed assets / Full capacity sales

   Target fixed asset / sales ratio = 1,000,000,000 / 6,666,666,666.67

   Target fixed asset / sales ratio = 15.00%

c) If sales increase by 13% from the current level of $ 6 billion

New sales = 6 * 1.13 billion = 6,780,000,000

No increase in Fixed asset till $6,666,666,666.67

Target Fixed asset ratio = 15%

Increase in fixed asset to meet the target is calculated

15% = Increase in fixed asset / ( 6780000000 - 6666666666.67)

Increase in Fixed asset = $17,000,000