Question

Alter Bridge Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Current sales are $880,000. Fixed assets are $520,000 and sales are projected to grow to $930,000. How much in new fixed assets are required to support this growth in sales? Assume the company maintains its current operating capacity

Answer 1

The total fixed assets required to support the growth in sales=$549,545.45

Step-by-step explanation:

The new fixed assets required to support this growth in sales can be calculated using the expression;

Ratio=current fixed assets/current sales

where;

Current sales=$880,000

Current fixed assets=$520,000

replacing;

Ratio=(520,000/880,000)=0.591

To calculate the new fixed assets to support the current growth in sales

Ratio=new fixed assets/new projected sales

where;

New fixed assets=x

New projected sales=$930,000

Ratio=0.591

replacing;

New fixed assets=Ratio×new projected sales

New fixed assets=(0.591×930,000)

New fixed assets=$549,545.45

The total fixed assets required to support the growth in sales=$549,545.45

Answer 2

USD 2064.8/-

Step-by-step explanation:

Full load sales = USD 880,000/0.95 = USD 926315.79

To get new level of F.A (fixed assets), we need to be sure to find the current percentage of F.A to full capacity sales.

To do so, we first find;

F.A / Full capacity/load sales:

= 520000 / 926315.79

= 0.56136 or 56.13%

Now, we find the total USD amount of F.A which is needed at new sales :

Total fixed assets = 0.56136 x USD 930000

= USD 522064.80

Now the required investment:

sales - current fixed assets:

= USD 522064.80- USD 520,000

= USD 2064.8

We get new fixed assets.