Question

Ausel's Cabinets has $27,600 in net fixed assets and is operating at 96 percent of capacity. Sales are $36,200 currently. What is the required increase in fixed assets if sales are projected to increase by 14 percent?

Multiple Choice$2,605 $6,833 $4,205 $3,400, $0

Answer 1

The full capacity sales is : 0.96* full capacity sales = $36,200,

So the level of full capacity sales is :

$36,200/ 0.96

=$37708.33

The anticipated increase in sales is = $41,268 ($36,200 *1.14)

The fixed assets of $27,600 is capable of generating maximum sales of $37708.33,

When the projected increase in sales is 41268, the new level of fixed assets should be.

(41268) * 27,600/$37708.33 = $30205.44

So, the increase in assets is:

=$30205.44 - $27,600

= $2605.44

=$2605

The correct option is option a.