Question

Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% 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 Fixed Assets/Sales ratio should the company set

Answer 1

Answer:

16%

Explanation:

The computation of the target fixed assets sales ratio is shown below:

As we know that

Target Fixed asset - Sales ratio is

= Fixed Assets ÷ Full Capacity Sales

where,

Fixed assets is $100 million

And the full capacity sales is

= $250 million × 40%

Now putting these values to the above formula

So, the target fixed asset sales ratio is

= $100 million ÷  $250 million × 40%

= 16%