Question #13219

4. Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its FA/Sales ratio was 40%. 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. 28.5%
b. 30.0%
c. 31.5%
d. 33.1%
e. 34.7%

Expert's answer

The answer is: b (30.0%)

Explanation: Total fixed assets used were 75% of $ 100 million = $ 75 million

The formula is FA/Sales ratio = 75 million/ 250 million = 30%

Explanation: Total fixed assets used were 75% of $ 100 million = $ 75 million

The formula is FA/Sales ratio = 75 million/ 250 million = 30%

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