Franklin Company has signed a contract that requires them to produce and sell 50,000 units for $5 per unit. A regression model was run using 24 observations to measure total costs as a function of units. It is as follows:

Total costs = $90,000 + $3 per unit

The standard error of the estimate is $5,000.

Required:

a. Calculate the following assuming certainty:

i. Breakeven in units and dollars

ii. Sales quantity needed to obtain an after-tax profit of $36,000. Assume that a 40 percent tax rate is used for only part ii.

iii. Sales in dollars needed to obtain a pretax profit equal to 20 percent of sales.

b. Calculate the following assuming uncertainty:

i. What is the range of incomes that would be expected with 95 percent confidence?

ii. What is the probability that the firm will lose money next year?