Question

Monk Consortium Corp. (Monk-Con) had sales of $1,550,000 last year on fixed assets of $380,000. Given that Monk-Con's fixed assets were being used at only 95% of capacity, then the firm's fixed asset turnover ratio was How much sales could Monk Consortium Corp. (Monk-Con) have supported with its current level of fixed assets? O $1,468,421 O $1,631,579 O $1,305,263 O $1,386,842 When you consider that Monk-Con's fixed assets were being underused, what should be the firm's target fixed assets to sales ratio? O 23.29% O 18.63% 0 20.96% O 19.80% Suppose Monk-Con is forecasting sales growth of 22% for this year. If existing and new fixed assets are used at 100% capacity, the firm's expected fixed-assets turnover ratio for this year is

Answer 1

The fixed asset turnover ratio is calculated by dividing sales by fixed assets.

Fixed asset turnover ratio = Sales / Fixed Assets
Fixed asset turnover ratio = $1,550,000 / $380,000
Fixed asset turnover ratio = 4.08

If Monk-Con's fixed assets were being used at only 95% of capacity, then the firm's fixed asset turnover ratio would be:

Fixed asset turnover ratio = Sales / (Fixed Assets x 0.95)
4.08 = Sales / ($380,000 x 0.95)
Sales = $1,631,579

Therefore, sales of $1,631,579 could be supported with Monk-Con's current level of fixed assets.

When considering that Monk-Con's fixed assets were being underused, the firm's target fixed assets to sales ratio should be lower. A lower ratio indicates that the firm is using its fixed assets more efficiently.

A target fixed assets to sales ratio of 18.63% would be appropriate for Monk-Con.

The expected fixed-asset turnover ratio for this year is calculated by multiplying the current year's fixed asset turnover ratio by the expected sales growth rate.

Expected fixed-asset turnover ratio = Current year's fixed-asset turnover ratio x (1 + Expected sales growth rate)
Expected fixed-asset turnover ratio = 4.08 x (1 + 0.22)
Expected fixed-asset turnover ratio = 4.98

Therefore, the expected fixed-asset turnover ratio for this year is 4.98.