Governance, CVP, cost analysis. Ahmed Diba is the controller of the Body Products Division of World Wide Drugs (WWD). It is located in Winnipeg, which is also the head- quarters of WWD. Diba is helping develop a proposal for a new product to be called Vital Hair. This product is a cream to be rubbed on the scalp to restore hair growth. Cheryl Kelly, president of the division, and Diba are scheduled to make a presentation to the WWD execu- tive committee on the expected profitability of Vital Hair. The fixed costs associated with the development, production, and marketing of Vital Hair are $25,000,000. Each customer will pay a doctor $98 per monthly treatment, of which $68 is paid to WWD. Diba estimates. WWD's variable costs per treatment to be $28.50. Included in this $28.50 is $9.25 for poten- tial product litigation costs. Kelly is livid at Diba for including the $9.25 estimate. She argues that it is imperative to get the R&D funds approved (and quickly) and that any number that increases the breakeven point reduces the likelihood of the Vital Hair project being approved. She notes that WWD has had few successful lawsuits against it, in contrast to some recent "horrendous" experiences of competitors with breast implant products. Moreover, she is furious that Dibs put the $9.25 amount in writing. "How do we know there will be any litiga- tion problem?" She suggests Diba redo the report excluding the $9.25 litigation risk cost estimarLO1

REQUIRED 1. What is the breakeven point (in units of monthly treatments) when WWD's variable costs (a) include the $9.25 estimate and (b) exclude the $9.25 estimate for potential product litigation costs? 2. Should Diba have excluded the $9.25 estimate in his report to the executive committee of WWD? Explain your answer. 3. What should Diba do in response to Kelly's decision to make the Vital Hair presentation on her own?