Question

The company is currently operating at only 94% of fixed asset capacity. Current sales are $830,000. How fast can sales grow before any new fixed assets are needed, or what is the maximum sales growth?

Answer 1

The company can experience sales growth up to 6% ($830,000 * (100% - 94%)) before reaching full fixed asset capacity without requiring any new fixed assets.

Step-by-step explanation:

In this scenario, the company is currently operating at 94% of fixed asset capacity, leaving a capacity for growth. To calculate the maximum sales growth without the need for new fixed assets, subtract the current capacity utilization from 100%. In this case, the calculation is as follows: 100% - 94% = 6%. Therefore, the company can experience sales growth up to 6% of the current sales ($830,000) before reaching full fixed asset capacity. This means that as long as the sales growth remains within this limit, the company can operate efficiently without the immediate need for additional fixed assets.