Ernie's Electrical has a capital intensity ratio of 1.20 at full capacity. Currently, total assets are $2,880 and current sales are $2,300. At what level of capacity is the firm currently operating?

Question

Quizplus · Accepted Answer

The capital intensity ratio is calculated as total assets divided by sales. At full capacity, this ratio is 1.20 for Ernie's Electrical. To find the current level of capacity, divide the current sales ($2,300) by the total assets ($2,880) and then divide by the full capacity capital intensity ratio (1.20). This gives ($2,300 / $2,880) / 1.20 = 0.6667 / 1.20 = 0.96 or 96%, indicating the firm is currently operating at 96% capacity.

Ernie's Electrical Has a Capital Intensity Ratio of 1