Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Transcribed Image Text: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 × 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
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- 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 × 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 Mfg., Inc., is currently operating at 90 percent of fixed asset capacity. Current sales are $712,000 and sales are projected to grow to $930,000. The current fixed assets are $686,000. How much in new fixed assets is required…arrow_forwardThe 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 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 Mfg., Inc., is currently operating at 90 percent of fixed asset capacity. Current sales are $805,500 and sales are projected to grow to $940,000. The current fixed assets are $775,000. How much in new fixed assets is required to support this growth in sales? (Do not round…arrow_forwardSuppose a firm has the following information: Operatingcurrent assets = $2.7 million; operating current liabilities =$1.5 million; long-term bonds = $3 million; net plant andequipment = $7.8 million; and other long-term operating assets =$1 million. How much is tied up in net operating workingcapital (NOWC)? ($1.2 million) How much is tied up in total netoperating capital? ($10 million)arrow_forward
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