Question

Hodgkiss Mfg., Inc., is currently operating at only 94 percent of fixed asset capacity. Current sales are $840,000. Fixed assets are $500,000 and sales are projected to grow to $910,000. How much in new fixed assets are required to support this growth in sales?

Answer 1

Answer:

= $9,167

Explanation:

What information do we have relevant to our question

The Current Operating Capacity = 94%

The Current Sales = $840,000

The Current fixed Asset = $500,000

The Projected Sales = $910,000

Step 1: we determine the Sales at full capacity

= Current Sales/ The Capacity of the Fixed Asset

= $840,000 / 0.94 = 893,617.021276

Step 2: We determine the Percentage of Fixed Assets

= Current Fixed Asst / The Sales at full capacity

= $500,000/ 893,617.021276

= 0.5595238095

Step 3: We determine the Required Total fixed Assets

=Percentage of fixed assets x Projected sales.

= 0.5595238095 x $910,000

= 509,166.666645

Step 4:: We calculate the New Fixed Asset needed to support sales growth

= Total Fixed Assets calculated in step 3 - The Current Fixed Assets

=   509,166.666645 - $500,000

= $9,167