Crale & Co manufactures replacement batteries for smartphones. The battery retails for $\$ 40$ and costs $\$ 10$ to make. Crale & Co currently sells 1 million batteries every year through its e-commerce website, and 1 million batteries a year via its network of retail distributors across the country.

Overheads incurred to recruit and retain website administrators amount to $\$ 800,000$ yearly, and other employee costs amount to $\$ 310,000$ for the e-commerce channel.

Via its retail distribution network, the company must also offer a $\$ 1.50$ discount per unit to distributors; also, the administrative cost of processing retail orders amounts to $\$ 620,000$.

Required:

(a) Which of the two channels is more profitable for Crale & Co? Further analysis of Crale & Co's financial data reveals that:

- $2 \%$ of the batteries sold via the website go unpaid every year, due to payment fraud.

- $\quad$ Packaging and distribution costs linked to the website operation have been calculated at $\$ 0.80$ per battery.

- $\quad$ Furthermore, $50 \%$ of the batteries ordered on the website qualify for free shipping due to web promotional vouchers. Batteries which qualify for this free shipping incur an additional cost of $\$ 1.20$ per battery to process the vouchers and ship to customers (not including the $\$ 0.80$ packaging and distribution costs mentioned above).

- The cost of shipping inventory in bulk to distributors is $\$ 1$ per unit.

(b) In light of this further analysis, which of the two channels is now more profitable?