Q12 Last year Jain Technologies had $250 million of sales and $100 million of fi

Question

Q12

Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?

Select one:

a. 34.7%

b. 33.1%

c. 30.0%

d. 31.5%

e. 28.5%

Explanation / Answer

Total Sales when Fixed Assets were at 75% = $250 mn

Sales when Fixed Assets operating at 100% capacity = 250/75% = $333.33 mn

So the target FA/Sales the company should set = $100/$333.33 = 30% (Option-C)

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