Osato Chemicals Inc. had sales of $1,400,000 last year on fixed assets of $380,0

Question

Osato Chemicals Inc. had sales of $1,400,000 last year on fixed assets of $380,000. Given that Osato's fixed assets were being used at only 96% of capacity, then the firm's fixed asset turnover ratio was assets of $380,000. Give How much sales could Osato Chemicals Inc. have supported with its current level of fixed assets? O $1,385,416 O $1,677,083 O $1,166,666 O $1,458,333 When you consider that Osato's fixed assets were being underused, what should be the firm's target fixed assets to sales ratio? O 27.36% O 26.06% O 31.27% o 20.85% Suppose Osato is forecasting sales growth of 18% for this year. If existing and new fixed assets are used at 100% capacity, the firm's expected fixed-assets turnover ratio for this year is

Explanation / Answer

Fixed Asset Turnover Ratio = Sales / Fixed Assets = 1,400,000 / 380,000 = 3.68

Expected Sales = 1,400,000 / 96% = 1,458,333

Target Fixed Assets to Sales = 380,000 / 1,458,333 = 26.06%

Fixed Asset Turnover Ratio = 1 / 26.06% = 3.84

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