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%

Question

Quizplus · Accepted Answer

To find the target FA/Sales ratio at full capacity, divide the current FA/Sales ratio by the capacity utilization rate: 40% / 0.75 = 53.33%. Then, calculate the target ratio by multiplying the full capacity ratio by the actual capacity utilization: 53.33% * 0.75 = 30.0%.

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