Question

Hodgkiss Mfg., Inc., is currently operating at only 80 percent of fixed asset capacity. Fixed assets are $462,000. Current sales are $550,000 and projected to grow to $790,625. How much in new fixed assets are required to support this growth in sales

Answer 1

New Fixed assets required = $69300

Step-by-step explanation:

To calculate the amount of new fixed assets required to support project sales, we first need to determine the amount of fixed assets required to support $1 of sale.

The sales value at full capacity is,

Full capacity sales = 550000 / 0.8

Full capacity sales = $687500

To calculate the $ amount of fixed asset required to support $1 in sales, we need to calculate the ratio of fixed assets to sales. The ratio is,

Fixed assets to sales = 462000 / 687500

Fixed assets to sales = 0.672

Thus, to support a sales level of $790625, the total amount of fixed assets needed will be,

Total fixed assets needed = 790625 * 0.672 = $531300

New Fixed assets required = 531300 - 462000 = $69300