QUESTION 34: A company is considering whether to develop and market a new product. The cost of developing the product is estimated to be R150 000. There is a 70% probability that the development will succeed and a 30% probability that the development will be unsuccessful. If the development is successful, the product will be marketed. There is a 50% chance that the marketing will be very successful and the product will make a profit of R250 000. There is a 30% chance that the marketing will be reasonably successful and the product will make a profit of R150 000 and a 20% chance that the marketing will be unsuccessful and the product will make a loss of R80 000. The profit and loss figures stated are after taking account of the development costs of R150 000.QUESTION 4 (25 marks] Harvey is currently preparing its budget for the year ended 30 September 2002. The company manufactures and sells three products, Beta, Delta and Gamma. The unit selling price and cost structure of each product is budgeted as follows: Beta Delta Gamma NS NS N$ Selling price 100 124 32 Variable costs: Labour 24 48 Materials 26 7 Overhead 10 60 20 Direct labour is budgeted at N$6 per hour and fixed costs at N$1 300 000 per annum. The company has a maximum production capacity of 228 000 direct labour hours. A meeting of the board of directors has been convened to discuss the budget and to resolve the problem as to the quantity of each product which should be made and sold. The sales director presented the results of a recent market survey which reveals that market demand for the company's products will be as follows: Products Units Beta 24 000 Delta 12 000 Gamma 60 000 The production director proposes that since Gamma only contributes N$12 per unit, the product should no longer be produced and the surplus capacity transferred to produce additional quantities of Beta and Delta. The sales director does not agree with the proposal. Gamma is considered necessary to complement the product range and maintain customer good will. If Gamma is not offered, the sales director believes that sales of Beta and Delta will be seriously affected. After, further discussion the board decided that a minimum of 10 000 units of each product should be produced the remaining production capacity would then be allocated so as to achieve the maximum profit possible. REQUIRED Marks 4.1. Determine what product mix and sales mix would maximise the organisation's profit in the next year. 25 TOTAL MARKS 25