Intermediate. A company is considering introducing a new product. Market research suggests that the selling price per unit should be $24, $25 or $26. The marketing department has produced estimates of sales demand and their associated probabilities for each possible selling price. These estimates are based on pessimistic, likely and optimistic forecasts and are as follows:

Required:
(i) Calculate the expected value of the total sales revenue for each of the selling prices.
(2 marks)
There is a 70 per cent chance that the variable cost will be $8 per unit and a 30 per cent chance that the variable cost will be $10 per unit.
(ii) Calculate the probability of earning a contribution of greater than $1.1 million if the selling price is set at $25.
(3 marks)
CIMA P1 Performance Operations

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$24 $25 $26 Sales demand Sales Sales demand demand Selling price Units Probability Units Probability Units Probability Pessimistic 70.000 0.2 Likely 80000 0.5 Optimistic 90.000 0.3 60000 0.1 0.6 70000 90000 0.3 30000 0.3 60000 0.4 70000 0.3