Answer:
a. <u>Calculation of level of sales</u>
Level of sales = Sales / Operating capacity
= 7,000,000,000/90%
= $7,777,777,777.78
b. <u>Calculation of Target fixed Assets/Sales ratio</u>
Fixed assets sales ratio = Fixed assets / Level of sales
= 1,944,000,000/7,777,777,777.78
= 0.249942857
= 0.25
c. <u>Calculation of Increase in Fixed assets</u>
Increase in fixed assets = Fixed assets sales ratio * (Increase in sales - Level of sales)
= 0.249942857 * (7,000,000,000*1+15% - 7,777,777,777.78)
= 0.249942857 * (8,050,000,000 - 7,777,777,777.78)
= 0.249942857 * 272,222,222.222
= $68,040,000.
