Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?

a. 33.1%

b. 28.5%

c. 30.0%

d. 31.5%

e. 34.7%

Question

Akira Mckee

Business

19 June, 07:57

Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?

a. 33.1%

b. 28.5%

c. 30.0%

d. 31.5%

e. 34.7%

+4

Answers (1)

Know the Answer?

Lillian Bruce · Answer 1

c. 30.0%

Explanation:

FA = fixed assets

FA / Sales = fixed assets / net sales.

75% of assets generates 250 millions in sales

full capacity will use 100% of the fixed assets capacity. Therefore sales for:

250,000 /.075 = 333,33 millions

The target fixed asset turnover should be of:

100,000 / 333,33 = 0,3000030000 = 30%