Answered: States Motors Inc. (USMI) manufactures…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 18E

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Transcribed Image Text: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 1,500 new vehicles annually: Sales Cost of goods sold AVERAGE DEALERSHIP FINANCIAL PROFILE Composite Income Statement Gross profit Operating costs Variable Mixed Fixed Operating income $30,000,000 24,750,000 $ 5,250,000 $ 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 Required 3 Profit 862,500 2,300,000 1,854,000 233,500 Required: 1. Calculate the composite dealership profit if 2,000 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 $4,500,000. If the projected annual sales for a dealership total $28,500,000, 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. Calculate the composite dealership profit if 2,000 units are sold.

Required 1
Required 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 $4,500,000. If the projected annual sales for a dealership total $28,500,000, determine the
approximate 95% confidence interval for Jack's prediction of sales. (Hint: The 95% confidence interval uses 2 standard
deviations.)
Range of sales
to
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