Answer to Question #13219 in Other Management for John
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?
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%