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 percent 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 1.62 = $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 Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset capacity. Current sales are $708,000 and sales are projected to grow to $920,000. The current fixed assets are $670,000. 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 whole number, e.g., 32.) New fixed assets
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 percent 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 1.62 = $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 Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset capacity. Current sales are $708,000 and sales are projected to grow to $920,000. The current fixed assets are $670,000. 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 whole number, e.g., 32.) New fixed assets
Chapter9: Responsibility Accounting And Decentralization
Section: Chapter Questions
Problem 3PB: The income statement comparison for Rush Delivery Company shows the income statement for the current...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT