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%

Question

Quizplus · Accepted Answer

To find the target FA/Sales ratio, we first need to determine what fixed assets would be required if the company were operating at full capacity. 
If the fixed assets were used at only 75% of capacity and the company wants to operate at full capacity, it would need to increase its fixed assets by 33.3% (1/0.75). 
Therefore, the target fixed assets would be $100 million x 1.333 = $133.3 million. 
Then, we can find the target FA/Sales ratio by dividing the target fixed assets by projected sales: 
Target FA/Sales ratio = $133.3 million / projected sales 
We don't have a specific value for projected sales, so we can use the current FA/Sales ratio to estimate. 
If the current FA/Sales ratio is 40%, then projected sales would be: 
Projected sales = $100 million / 0.4 = $250 million 
Using projected sales of $250 million: 
Target FA/Sales ratio = $133.3 million / $250 million = 0.533 = 53.3% 
Therefore, the company should aim for a target FA/Sales ratio of 53.3%. 
However, none of the answer choices match this value. 
The closest answer choice is B) 30.0%, which is significantly lower than the calculated 53.3%. 
Therefore, answer choice B) 30.0% may be the best choice available, but it is not a perfect match for the calculated value.

Year Jain Technologies Had $250 Million of Sales and $100