Question

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 3,500 new vehicles annually: AVERAGE DEALERSHIP FINANCIAL PROFILE Composite Income Statement $70,000,000 57,750,000 $12,250,000 Sales Cost of goods sold Gross profit Operating costs Variable Mixed Fixed 2,012,500 5,390,000 4,326,000 $521,500 Operating income 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 5,000 units are sold 3. The regression equation that Jack Snyder developed to project annual sales of a dealership has an Rsquared of 60% and a standard error of the estimate of $10,500,000. If the projected annual sales for a dealership total $66,500,000, determine the approximate 95% confidence interval for Jack's prediction of sales. (Hint: The 95% confidence interval uses 2 standard errors in determining the interval.) Complete this question by entering your answers in the tabs below. Required1 Required3 Calculate the composite dealership profit if 5,000 units are sold

Answer 1

Answer:

1.)
Assuming that all purchases of autos for resale (cost of goods sold ) represents variable cost price.
=$70,000,000/3,500
=$20,000 (variable cost price)

variable cost per unit =(2,012,500 + 90/100 * 5,390,000 + 57,750,000) / 3,500 = $18461
fixed cost = 4,326,000 + 10/100 * 5,390,000 = $4,865,000

sales = 5,000 * 20000 =100,000,000
(-)variable cost = 5,000 * 18461 = 92,305,000
contribution margin = 7,695,000
(-)fixed cost = 4,865,000
profit   = 2,830,000