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AP Business with Personal Finance: Distribution Channels Drill (Drill 13)

Drill 13 ·

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About This Drill

AP Business with Personal Finance: Distribution Channels Drill (Drill 13) is a practice drill. It contains 5 original questions created by Brian Stewart, a Barron's test prep author with over 20 years of tutoring experience.

A distribution-channel tradeoff drill set for AP Business with Personal Finance; uses an invented company and original figures.

Passage

Tovenhill Packs makes backpacks and is deciding how to sell its newest model. It is weighing two distribution channels: selling directly to customers through its own website, or selling through a retail chain that puts the pack in stores. The table compares the two channels on the figures the owner cares about.

Tovenhill Packs: Channel Comparison (per-unit and reach estimates)

ChannelMargin to Tovenhill per packEstimated annual units soldControl over customer experience
Direct (own website)$30.004,000High
Retail chain$18.0010,000Low

Rounding: report all dollar amounts to the nearest whole dollar.

Questions in This Drill

  1. Which channel gives Tovenhill the higher margin per pack?
  2. When Tovenhill sells through a retail chain that buys the packs and resells them in its stores, the retail chain is acting as what in the distribution channel?
  3. How much more total annual margin does the retail-chain channel generate than the direct channel (total margin equals per-pack margin times annual units)?
  4. Why does the direct channel give Tovenhill a higher margin per pack but reach fewer customers than the retail chain?
  5. Tovenhill's owner decides the top priority is to sell the most packs this year, even if margin per pack is lower. Based on the table, which channel best fits that goal?