Excess capacity Walter Industries has $8 billion in sales and $1.3 billion in fi
ID: 2647140 • Letter: E
Question
Excess capacity
Walter Industries has $8 billion in sales and $1.3 billion in fixed assets. Currently, the company's fixed assets are operating at 95% of capacity.
What level of sales could Walter 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.
$
THIS ANSWER IS 8421052631.6
What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.
%
If Walter's sales increase 12%, 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. Do not round intermediate calculations.
$
Explanation / Answer
ANSWER: Level of sales could Walter Industries have obtained if it had been operating at full capacity:
SALES = $8 BILLION
FIXED ASSET = $1.3 BILLION AND COMPANY OPERATING AT 95% CAPACITY.
IF COMPANY IS OPERATING AT 100% CAPACITY THAN FIXED ASSEST IS
100% CAPACITY= FIXED ASSET/ OPERATING CAPACITY
= 1.3/0.95=1.36842105263
FIXED ASSEST TURNOVER RATIO = NET SALES/NET FIXED ASSEST
= $8 BILLION/$1.3 BILLION
=$6.15384615384 BILLION
CALCULATION OF LEVEL OF SALE IF COMPANY IS OPERATING AT 100% CAPACITY:
FIXED ASSEST TURNOVER RATIO = NET SALES/NET FIXED ASSEST
$6.15384615384 BILLION= NET SALES/$1.36842105263BILLION
=$ 8.42105265414 BILLION
WALTER'S TARGET FIXED ASSEST /SALES RATIO IS:
FIXED ASSEST TURNOVER RATIO = NET SALES/NET FIXED ASSEST
WHEN CO. IS OPERATING AT 100% CAPACITY THAN SALES IS $ 8.42105265414 BILLION AND NET FIXED ASSEST IS $1.36842105263.
THAN FIXED ASSEST TURNOVER RATIO IS = ($ 8.42105265414/$1.36842105263)BILLION
=$6.15384617034 BILLION TIMES
If Walter's sales increase 12%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio:
IF SALE INCREASE BY 12% THAN NEW SALE IS ($8.42105265414 BILLION*1.12)=$9.43157897263BILLION
FIXED ASSEST TURNOVER RATIO = NET SALES/NET FIXED ASSEST
$6.15384617034 BILLION TIMES = $9.43157897263BILLION/NET FIXED ASSEST
=$1.53263157894 BILLION
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