Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 1,700 new vehicles annually:

AVERAGE DEALERSHIP FINANCIAL PROFILE
Composite Income Statement
Sales $ 34,000,000
Cost of goods sold 28,050,000
Gross profit $ 5,950,000
Operating costs
Variable 977,500
Mixed 2,618,000
Fixed 2,101,200
Operating income $ 253,300

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 2,300 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 $5,100,000. If the projected annual sales for a dealership total $32,300,000, determine the approximate 95% confidence interval for Jacks prediction of sales. (Hint: The 95% confidence interval uses 2 standard errors in determining the interval.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Web Applications A Complete Guide

Authors: Gerardus Blokdyk

1st Edition

1038803721, 978-1038803726

More Books

Students also viewed these Accounting questions

Question

How to Estimate a Population Mean or Proportion

Answered: 1 week ago

Question

Detailed note on the contributions of F.W.Taylor

Answered: 1 week ago