Question

Quantitative Problem 2: Mitchell Manufacturing Company has $1,900,000,000 in sales and $390,000,000 in fixed assets. Currently, the company's fixed assets are operating at 75% of capacity. What level of sales could Mitchell have obtained if it had been operating at full capacity? Do not round intermediate calculations. Round your answer to the nearest dollar. $ What is Mitchell's Target fixed assets/Sales ratio? Do not round intermediate calculations. Round your answer to two decimal places. % If Mitchell's sales increase 35%, how large of an increase in fixed assets will the company need to meet its Target fixed assets/Sales ratio? Do not round intermediate calculations. Round your answer to the nearest do

Answer 1

Answer:

1. $2,533,333,333

2. 15.39%

3. $136,458,000

Explanation:

1. The computation of sales level for full operating capacity is shown below:

= (Actual sales) ÷ (operating capacity)

= $1,900,000,000 ÷ 75%

= $2,533,333,333

2. The computation of the Target fixed assets sales ratio is shown below:

= Target fixed assets ÷ Full capacity sales

= $390,000,000 ÷ $2,533,333,333

= 15.39%

3. If sale increase by 35% so the new sales would be

= Sales  + Sales  × increase percentage

=  $2,533,333,333 +  $2,533,333,333 × 35%

=  $2,533,333,333 + $886666667

= $3,420,000,000

So, increase in fixed assets =  Target fixed assets sales ratio × (New sales - full capacity sales)

= 15.39% × ( $3,420,000,000 -  $2,533,333,333)

= 15.39% ×  $886666667

= $136,458,000