Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% 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 Fixed Assets/Sales ratio should the company set

Question

Business

Karly Day

22 June, 19:37

Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% 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 Fixed Assets/Sales ratio should the company set

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Answers (1)

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Luz Berry · Answer 1

16%

Explanation:

The computation of the target fixed assets sales ratio is shown below:

As we know that

Target Fixed asset - Sales ratio is

= Fixed Assets : Full Capacity Sales

where,

Fixed assets is $100 million

And the full capacity sales is

= $250 million * 40%

Now putting these values to the above formula

So, the target fixed asset sales ratio is

= $100 million : $250 million * 40%

= 16%