Baldwin Bicycle Company

Only available on StudyMode
  • Download(s) : 281
  • Published : December 12, 2007
Open Document
Text Preview

Baldwin Bicycle Company has been a bicycle manufacturer who produced various high quality models. Due to competition in 1981, the firm's sales revenues significantly dropped in the following two consecutive years. In addition, it could only operate at 75 percent of the plant's capacity. In May 1983, the firm received a proposed production plan of sporting bicycles, named Challenger, from Hi-Valu. There would be two types of direct costs associating with the new bicycle production, including one-time costs such as costs of preparing drawings and arranging sources that were not in current models and ongoing costs of producing bicycles such as materials, wages, and overhead. Indirect costs would be asset-related costs based on annual percentage of dollar value of assets such as cost of debt and book keeping of receivables and inventories, insurance and state property tax of inventory, etc. As a result, Hi-Valu would buy approximately 25,000 bikes at $92.29 per bike in the first year and unit cost would increase if production costs due to increasing in production volume. However, the proposed Challenger bikes might impact Baldwin's sales of other bicycle models since final consumers might find high value in the new bikes. Our team mission is to determine whether or not Baldwin should accept the proposal. If yes, we will need to decide what costs should be included in manufacturing and carrying the working capital investment a Challenger bike, including erosion costs and recommended chargeable amount. In the Baldwin shareholders' side, we would estimate ROI, major cash flow implications, and trifecta affects of the proposal.
tracking img