The AFN equation assumes that the proportions remain constant. However, companies do not always operate at full capacity, so adjustments to the existing asset forecast are necessary. Excess capacity adjustments are changes made to the existing asset forecast because the company is not operating at full capacity. For example, a company may not be at full capacity with respect to its fixed assets. First, the company's management should find out the company's total capacity sales as follows: Then, management would calculate the company's target fixed asset ratio as follows: Finally, management would use the fixed asset ratio Fixed target with projected sales to calculate the level required by the company. of fixed assets as follows: Required Level of Fixed Assets = (Target Fixed Assets/Sales) × Projected Sales Quantitative Problem 2: Mitchell Manufacturing Company has $1,200,000,000 in sales and $360,000,000 in fixed assets. Currently, the company's fixed assets are operating at 80% of their capacity.

What level of sales could Mitchell have achieved if it had been operating at full capacity? Round your answer to the nearest dollar. Do not round intermediate calculations. $

What is Mitchell's fixed assets/target sales ratio? Round your answer to two decimal places. Do not round intermediate calculations. %

If Mitchell's sales increase by 60%, how much increase in fixed assets will the company need to meet its target fixed assets/sales ratio? Round your answer to the nearest dollar. Do not round intermediate calculations.

Answer rating: 100% (QA)

To find the level of sales if Mitchell had been operating at full capacity we can use the formula To... View the full answer