United States Motors Inc. (USMI) manufactures automobiles and light trucks and distributes them for sale to consumers through franchised retail outlets. As part of the franchise agreement, dealerships must provide monthly financial statements following the USMI accounting procedures manual. USMI has developed the following financial profile of an average dealership that sells 2,700 new vehicles annually:

USMI is considering a major expansion of its dealership network. The vice president of marketing has asked Jack Snyder, corporate controller, to develop some measure of the risk associated with the addition of these franchises. Jack estimates that 90% of the mixed costs shown are variable for purposes of this analysis. He also suggests performing regression analyses on the various components of the mixed costs to more definitively determine their variability.

Required:

1. Calculate the composite dealership profit if 3,800 units are sold.

3. The regression equation that Jack Snyder developed to project annual sales of a dealership has an R-squared of 60% and a standard error of the estimate of $8,100,000. If the projected annual sales for a dealership total $51,300,000, determine the approximate 95% confidence interval for Jacks prediction of sales. (Hint: The 95% confidence interval uses 2 standard errors in determining the interval.)

AVERAGE DEALERSHIP FINANCIAL PROFILE Composite Income Statement Sales $54,000,000 Cost of goods sold 44,550,000 Gross profit $ 9,450,000 Operating costs Variable 1,552,500 Mixed 4,158,000 Fixed 3,337,200 Operating income $ 402,300