Earleton Manufacturing Company has $2 billion in sales and $800,000,000 in fixed assets. Currently, the company's...

3.5 Ratings (547 Votes)

a)Level of sales if operated at 100% capacity = current Sales /% of capacity

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 2,000,000,000/.80

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = $ 2,500,000,000

b)Target Fixed asset /sales Ratio =Fixed asset /sales at 100% capacity

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 800,000,000/2,500,000,000

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = .32

c)Increased sales = 2,000,000,000(1+.35)= 2,700,000,000

Target Fixed asset /sales Ratio =Fixed asset /sales at 100% capacity

.32 = Fixed asset /2,700,000,000

Fixed asset = .32*2,700,000,000

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = $ 864,000,000

Increase in fixed asset = Target fixed asset - Current fixed asset

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 864,000,000 - 800,000,000

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = $ 64,000,000

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