Question

The discussion of EFN in the chapter implicitly assumed that the company was operating at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90 perċent capacity. Full-capacity sales would be $1,000/90= $1,111. The balance sheet shows $1,800 in fixed assets. The capital intensity ratio for the company is: Capital intensity ratio = Fixed assets/Full-capacity sales = $1,800/$1,111 =1.62 This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it reaches full capacity. At the projected sales level of $1,250, it needs $1,250 x 162 = $2,025 in fixed assets, which is $225 lower than our projection of $2,250 in fixed assets. So. EFN is $565-225= $340. Blue Sky Mfg., Inc., Is currently operating at 90 percent of fixed asset capacity. Current sales are $738,000 and sales are projected to grow to $843,000. The current fixed assets are $703,000. How much in new fixed assets is required to support this growth in sales? (Do not round intermediate calculations and round your answer to the nearest dollar amount, e.g.. 32.

Answer 1

To calculate the amount of new fixed assets required to support the growth in sales, you can use the formula for capital intensity ratio. By calculating this, you can find the amount of new fixed assets required.

Step-by-step explanation:

To calculate the amount of new fixed assets required to support the growth in sales, we can use the formula for capital intensity ratio. The formula is:

Capital intensity ratio = Fixed assets / Full-capacity sales

In this case, the current fixed assets are $703,000 and the projected sales are $843,000. To find the new fixed assets required, we can substitute these values into the formula:

New fixed assets = Capital intensity ratio x Projected sales

By calculating this, we can find the amount of new fixed assets required to support the growth in sales.

Answer 2

To support the growth in sales from $738,000 to $843,000, the new fixed assets required would be approximately $802,933.

Step-by-step explanation:

New fixed assets required:

To support the growth in sales from $738,000 to $843,000, we need to calculate the difference in fixed assets required. The fixed assets at 90% capacity are $703,000. We can use the formula: New fixed assets = (Projected sales / Full-capacity sales) * Current fixed assets = ($843,000 / $738,000) * $703,000. Therefore, the new fixed assets required to support this growth in sales is approximately $802,933.