Baldwin Bicycle Company: Background of the Study

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BA-561 MAC
Abdulgaffur G. Deki
Oscar M. Inocencio
Chester V. Lagutin
Felomena C. Baal
Edsel Cariz J. Tiu
12 October 2012
“Baldwin Bicycle Company”

Background of the Study:
Baldwin Bicycle Company (BBC) is a full-line bicycle manufacturing company with 40 years of experience. In 1982, BBC has revenue of over $10M for 98,791 units produced. BBC exclusively distributes through independently-owned retailers, their bicycles are known for their above-average quality. In May 1983, a rapid-growing Northwestern discount retail chain, Hi-Valu, Suzanne Leister, VP Marketing, proposed a private-label agreement. Under this program, BBC would manufacture the Challenger line of bicycles exclusively for Hi-Valu. The Challenger line was to be a low-priced value bicycle, sold at retail prices under BBC’s normal product lines. Statement of the problem:

What is the overall impact to the company if BBC will accept the proposal in terms of? a.) PROFIT
1. To be able to show and analyze the proposal depending on the result which will be used to serve as a basis for making decisions. 2. To determine the total relevant cost in producing additional orders for Hi-Valu. Areas of consideration:

1. BBC sales over the next three years would be 100,000 bikes a year if they will forego the Hi-Valu deal. 2. If BBC will accept the offer, 3,000 units will be lost in regular sales volume a year. 3. According to Ms Leister, Vice President for Marketing, she was acutely aware that the “bicycle boom” had fattened out, and that poor economy had caused Baldwin sales volume to fall. 4. BBC was currently operating its plant at about 75% of capacity meaning, 75,000 units is currently produced. (excess capacity 25,000 units) 5. The contract between BBC and Hi-Valu is for three years and will be automatically extended on a year to year basis, unless one party gave notice that it did...
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