Excess capacity Walter Industries has $8 billion in sales and $1.3 billion in fi
ID: 2647256 • 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.
$
8421052631.6
What is Walter's target fixed assets/Sales ratio? Round your answer to two decimal places.
%
THE ANSWER IS 15.44%
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.
$ NEED THIS ANSWER!
Explanation / Answer
1.Level of sales when fixed assets are operated at 100 %
Currently the fixed assets are operating at 95 % of capacity.
At this capacity sale is $8,000,000,000
If fixed assets will be utilised at its full capacity
Then sales = $ 8,000,000,000/0.95
Sales = $8421052631.6
2.Target Fixed Assets / sales Ratio
Till 100% utilisation of fixed assets there is no need of additional fixed assets.
Hence Fixed Assets to sales ratio will be
(Fixed Assets/ Net Sales)X100
= (1300000000/8421052631.6) X100
= 15.44%
3.Calculation of additional fixed assets when sales increased by 12 %
Existing sales= $ 8,000,000,000
Increased sales= $ 8,000,000,000 X 112%
Sales = 8960000000
Target fixed asset to sales ratio is 15.44%
15.44= Fixed Assets/ Sales
Fixed Assets= 15.44 X sales
Fixed Assets= 15.44 X 8960000000
Fixed Assets= $ 138342400000
Increase in Fixed Asset Required= $ 138342400000- $1300000000
Increased in Fixed Asset Required=$ 137042400000
Sales = $8421052631.6
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