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Homework answers / question archive / Hodgkiss Mfg
Hodgkiss Mfg., Inc., is currently operating at only 82 percent of fixed asset capacity. Fixed assets are $406,700. Current sales are $490,000 and projected to grow to $651,341. How much in new fixed assets are required to support this growth in sales? Assume the company wants to operate at full capacity.
Computation of the required new fixed assets:-
Full capacity sales = Current sales / Fixed asset capacity
= $490,000 / 82%
= $597,560.98
Capital intensity ratio = Fixed assets / Full capacity sales
= $406,700 / $597,560.98
= 0.6806
= $
Required new fixed asset = (Sales projected to grow * Capital intensity ratio) - Fixed assets
= ($651,341 * 0.6806) - $406,700
= $443,302.68 - $406,700
= $36,602.68
