Southern Mfg., Inc., is currently operating at only 87 percent of fixed asset capacity. Current sales are $660,000. How fast can sales grow before any new fixed assets are needed?

Southern Mfg., Inc., is currently operating at only 87 percent of fixed asset capacity. Current sales are $660,000. How fast can sales grow before any new fixed assets are needed? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Maximum sales growth

%

 

Explanation:

To determine full capacity sales, we divide the current sales by the capacity the company is currently using, so:

Full capacity sales	=	$660,000 / .87
Full capacity sales	=	$758,621

The maximum sales growth is the full capacity sales divided by the current sales, so:

Maximum sales growth	=	($758,621 / $660,000) – 1
Maximum sales growth	=	.1494, or 14.94%