FND Hill has two options to enter the small business market $$ through a partnership or through direct sales. The costs and pricing differs for each approach.

Hill Partnership:

$-$ Sales price is $35\%$ lower

$-$ Hill would sell and service the products

$-$ FND is considering paying commissions to their own sales force

Direct Sales

$-$ Sales are expected to be $25\%$ of possible sales through the partnership

$-$ Service and sales support costs would be incurred

$1.$ Determine the unit contribution margin for the RX$-10$ model and for the RX$-50$ model under the direct$-$sales approach.

$2.$ Determine the unit contribution margin for each of the two product models selling through the potential Hill partnership channel. Prepare your analysis including and excluding commissions.

$3.$ The Hill partnership has estimated low sales volume of $2,500$ and estimated high volume of $5,000$ units. The estimated direct sales volume would be $25\%$ of the Hill partnership. Using your calculations from Questions $1$ and $2,$ above, prepare an analysis of incremental Total Contribution Margin $($TCM$)$ for sales through the Hill channel for four scenarios:

a$.$ If all Hill sold was RX$-10$s in a volume of $2,500$ units per year.

b$.$ If all Hill sold was RX$-50$s in a volume of $2,500$ units per year.

c$.$ If all Hill sold was RX$-10$s in a volume of $5,000$ units per year.

d$.$ If all Hill sold was RX$-50$s in a volume of $5,000$ units per year.

$($Those four possibilities should provide good estimates of the minimum and maximum TCM effects of the proposed partnership arrangement.$)$ Note that the case estimates direct sales at $25\%$ of those sales possible through Hill. In your comparison, use $25\%$ of the Low & High estimates for the comparable direct sales.

$4.$ Identify the categories of potential differential fixed costs that might arise in pursuing either the direct$-$sales initiative or the Hill channel partnership. Which are relevant to your recommendation and which are not? $($Hint: use the activity based hours and costs for service and sales support, if applicable$)$

$5.$ Provide an assessment of the role that the sales commission data plays in your overall recommendation analysis. What role should it play, and why?

$6.$ Provide an assessment of the threats associated with partnering with Hill. How does this figure into the decision? Why?