Which is correct? 8. I understand the situation perfectly. You mustn't / don't need to explain further.

The correct answer is don't need to. Since the speaker understands perfectly, no further explanation is necessary. 'Don't need to' indicates a lack of necessity, and it's used in place of 'needn't' which would also be correct in this context. 'Mustn't' would be incorrect because it expresses prohibition.