Question

1.With sales of $250, a firm has $80 of fixed assets operating at 75% of capacity. How large can sales be without any need of additional external funds?

A)$312.5

B)$328.1

C)$333.3

D)$345.6

2.A firm had $450 of sales, with $360 of fixed assets at 60% of capacity. How much can sales increase to reach full capacity?

A)$810

B)$750

C)$600

D)$300

3.If the inventory/sales ratio is 1.5 when sales are $200, but that the ratio declines to 1 when sales climb to $400. What is the underlying asset feature?

A)Assets exhibiting economies of scale

B)Assets exhibiting diseconomies of scale

C)Assets exhibiting constant economies of scale

D) Assets are in large, discrete units

Answer 1

1.

Given:

Sales of $250 is at 75% capacity of fixed assets.

Therefore, at full capacity of fixed assets, Sales will be $333.33 (i.e. 250/0.75*100).

2. Given:

$450 of sales at 60% of capacity of fixed assets.

At 100% capacity of fixed assets,

Sales will be $750. i.e. 450/0.60*100

Therefore, sales can be increased by $300. i.e. $750-$450.

3. Lower inventory/sales ratio represents that goods are being sold slowly and there is less demand for the product and vice versa. It shows that Assets exhibiting diseconomies of scale.

Answer is B)