Hemo-Tech Inc. Harvard Case Solution & Analysis

Hemo-Tech, Inc.

Hemo-Tech Inc. ("Hemo") manufactures and sells blood extracting and storing equipment to different hospitals, laborites and physicians. Hemo-Tech Inc. is the sole company in United States, which sales and manufactures the new technology equipment for the next generation. Hemo-Tech Incorporation’s latest equipment is Bio-07. This equipment improves the blood extracting and storing efficiency and also mitigates the risk involved to a minimum level. Hemo-Tech Inc. competitors are not too strong, the competitors of the Hemo-Tech Inc. latest products are very much similar to the BIO-02 equipment of the company, which is too old equipment technology of the Hemo-Tech Inc.

Part I:

Hemo identified the five units of equipment, 50 boxes of equipment supplies, installation, one-year monitor and test services, and three-year screen and report services as deliverables in the arrangement. Has Hemo identified all the potential deliverables in the arrangement? If not, what are the other potential deliverables? Explain how you determined whether an item is a deliverable.

Hemo-Tech Inc. enters into a contractual agreement with the Extract Co, effective from July 01, 2011 to manufacture and sell equipment of the latest technology BIO-07 model to Extract Co. Hemo-Tech Inc. agrees to provide the specified equipment to Extract Co. within the region X of the company.

The already identified deliverables of Hemo-Tech Inc. are five unit's equipment with manual, within fifteen days from the effective date of the agreement that is July 01, 2011, Extract Co. may purchase additional equipment on separate negotiated purchase order. Fifty boxes of equipment supplies, additional supplies may be borrowed at 33 percent discount. One year monitoring and testing services and three year screen and report services.

Other Deliverables to be considered:

Deliverables are products and services used in any contract agreements in which the vendor considers the multiple revenue recognizing activities.

The deliverables other than the above specified deliverables to be considered by the Hemo-Tech Inc. are;

  • Hemo-Tech Inc. should extend the monitor and test services of BIO-07 equipment after one year service on an annual basis over the period of the whole contract.
  • Hemo-Tech Inc. should warranty service of BIO-07 equipment one year period after the installation should be served, after the expiry of the warranty period on discounted prices, if the equipment is used according to the product manual.

Hemo-Tech Inc. should also consider the deliverable that if any new technology

  • to the market, Hemo-Tech Inc. should replace the BIO-07 equipment with the latest equipment at the reasonable price to retain its customers, if the existing equipment is obsolete by law and enforcement departments of United States which is Food and Drug Administration (FDA). This would build up good customer relation for the Hemo-Tech Inc. in the industry.
  • Hemo-Tech Inc. should also give the option to Extract Co. to extend the contract on additional contracted fees.
  • Hemo-Tech Inc. should offer the Extract Co. the future equipment at low prices as compared to the competitors to gain the competitive edge over the competitors.

Reasons for Other Deliverables:

The other deliverables mentioned above are considered to build the customer relationship within the industry. Hemo-Tech Inc. should also look forward to introduce different strategies to introduce the new deliverable effectively and efficiently to lead the market as it is already enjoying the market leadership among the competitors in the industry. The extension of warranty and monitor and test services would increase the trust and relationship of the Extract Co. for Hemo-Tech Inc. for further contract evaluation with the Hemo-Tech Inc. The new technology equipment is offered to the company on the basis of the existing equipment by the FDA, which should also help Hemo-Tech Inc. in future contracts, as this type of replacement is generally not offered in the market, but it would increase the customer relationship for Hemo-Tech Inc.

Part II:

In order to allocate the arrangement consideration to all the deliverables identified, Hemo needs to determine the selling price for each deliverable. Should Hemo use vendor-specific objective evidence (VSOE), third-party evidence (TPE), or its best estimate of the selling price (ESP) to determine the selling price of the following deliverables: (1) equipment, (2) discount on future supplies, and (3) screen and report services?


The competitor within the region is charging cost of $605,000 per equipment, but it doesn’t include the installation, test and monitor services of the equipment. Hemo-Tech Inc. quote price of $625,000 per equipment

is the reasonable price for Extract Co. because this quoted price includes all the related services of installation, test and monitoring of the equipment. $625,000 equipment cost of Hemo-Tech Inc. includes the prime cost as well as research and development cost and profit on the historical margin basis for the manufacturing of BIO-07 equipment.......................

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