1 (18 marks) The management of Mega Toy Limited is considering making a new product, but it is Required unsure about how to price the product and its variable cost. The marketing department believes that the company can sell the product for N$550 per unit but it feels that if the initial market response is weak, the price may have to be 30% lower in order to be competitive with existing products. Management's best estimate of the new products costs are fixed costs of N$26 million and a variable cost of N$280 per unit. Management is also concerned about fluctuations in the variable cost per unit due to volatile raw material and labour costs. Although management expects a variable cost of N$280 per unit, it could be as much as 8% above that value. Management expects to sell about 1 500 000 units of the new product per year. (a) Calculate the new product's break-even volume, assuming management's initial estimates are accurate. (6 marks) (b) In the worst case scenario, how many units will the company need to sell to break even? (8 marks) (c) If each of the possible price/variable cost combinations is equally probable, what is the company's expected break-even point for the new product? (2 marks) (d) Based on your finding in (c) above, should management go ahead with the proposed new product? Explain why. (2 marks)