Hill Partnership:

• Sales price is 35% lower
• Hill would sell and service the products
• FND is considering paying commissions to their own sales force

QUESTION BELOW:

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-10s in a volume of 2,500 units per year.

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

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

d. If all Hill sold was RX-50s 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.

• For questions one and two below are the unit contribution margins:
  • RX-10 Model: UCM - $150 / $105 with commission/ $95 without commission.
  • RX-50 Model: UCM - $250/ $205 with commission/ $195 without commission.