Final answer:
To support a 4 percent increase in sales, Ed's Market needs additional fixed assets of approximately $18,997.03. This is determined by calculating the sales increase and then using the current sales to fixed assets ratio to find the required fixed assets increase.
Step-by-step explanation:
The question asks for the required addition to fixed assets Ed's Market would need if there is a 4 percent increase in sales, given their current sales level and fixed assets values, as well as the profit margin.
To remove the profit margin from the calculation and focus only on the necessary investment in fixed assets related to sales, we use the proportionality of the sales to fixed assets (also called asset turnover ratio). Since Ed's Market is operating at full capacity, the fixed assets must increase at the same rate as the sales increase in order to maintain the same level of productivity.
First, let's find the projected increase in sales: 547,200 × 0.04 = 21,888. Next, since the fixed assets currently support 547,200 in sales at full capacity, every dollar of fixed asset supports 547,200 / 471,000 dollars of sales. Thus, to support an additional 21,888 in sales, the market would need 21,888 ÷ (547,200 / 471,000) in new fixed assets, which calculates to approximately 18,997.03.