Excess capacity Edney Manufacturing Company has $2 billion in sales and $0.7 bil
ID: 2646864 • Letter: E
Question
Excess capacity
Edney Manufacturing Company has $2 billion in sales and $0.7 billion in fixed assets. Currently, the company's fixed assets are operating at 85% of capacity.
What level of sales could Edney have obtained if it had been operating at full capacity? Enter your answer in millions. For example, an answer of $5 billion should be entered as 5,000. Round your answer to two decimal places.
$ million
What is Edney's Target fixed assets/Sales ratio? Round your answer to two decimal places.
%
If Edney's sales increase 40%, 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, 13 million should be entered as 13,000,000. Round your answer to the nearest cent.
$
Explanation / Answer
Edney Manufacturing Company has $2 billion in sales and $0.7 billion in fixed assets. Currently, the company's fixed assets are operating at 85% of capacity.
What level of sales could Edney have obtained if it had been operating at full capacity? Enter your answer in millions. For example, an answer of $5 billion should be entered as 5,000. Round your answer to two decimal places.
Full capacity Sales= Actual Sale/ Percentage of Capacity at which fixed asset were operated
Full capacity Sales = 2000/85%
Full capacity Sales = $ 2352.94 Million
What is Edney's Target fixed assets/Sales ratio? Round your answer to two decimal places.
Target fixed assets/Sales ratio = Actual Fixed Asset/Full capacity Sales
Target fixed assets/Sales ratio = 700/2352.941
Target fixed assets/Sales ratio = 29.75%
If Edney's sales increase 40%, 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, 13 million should be entered as 13,000,000. Round your answer to the nearest cent.
Projected Sale = 2000*(1+40%) = 2800 Million
Required Level of Fixed Asset = Projected Sale*Target fixed assets/Sales ratio
Required Level of Fixed Asset = 2800*29.75%
Required Level of Fixed Asset = 833 Million
Increase in fixed assets will the company need = 833 - 700
Increase in fixed assets will the company need = $ 133 Million
Increase in fixed assets will the company need = $ 133,000,000
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