MFG Inc. has two alternative means of manufacturing its product. Process A has fixed costs of $21,000 per period and a variable cost of $6 per unit. Process B requires fixed costs of $45,000 per period plus a variable cost of $4 per unit produced. The product sells for $8 per unit. The firm has forecast sales to be as follows:

Sales units = 8,500 units per period + 0.0002*(disposable income)

The equation was determined by fitting a regression line to 18 pairs of data relating sales to the disposable income of residents in various marketing area. The standard error of the estimate is 700 units. The firm estimates that the disposable income of residents in this new market segment is $20,000,000

Required: you must provide all the detailed supporting computations.

• The firm uses process B in this new area, what is the probability of losing money? (8 marks)
• What is the range of sales in units the firm can expect in the new area with confidence of 95%? (8 marks)
• What is the probability that sales will exceed 15,000 units per period? (10 marks)
• At what level of sales units will the firm be indifferent between the two alternative processes for manufacturing the product? (6 marks)
• If the firm predict sales to be 15,000 units and therefore chooses to use process B, what is the cost of the prediction error if the demand turns out to be 11,000 units (8 marks)