Given the case study “Baldwin Bicycle Company” this paper will discuss whether the company should use relevant costing to reach a decision on a new contract they have been offered. In determining this we will discuss the relevant costing assumptions and see if and why they apply to High Value’s proposal. The type of decision
It is a once of decision for Baldwin because they have to decide whether to take a new contract from Hi-Valu that will change the selling price of their bicycles because Hi-Valu wanted to sell the bikes at ‘lower prices than Baldwin’s wholesale prices’, their supply chain from ‘toy store, hardware stores and sporting goods store’ to ‘distributing their products to department store chains’ and it will also change its product mix because they would have to change the ‘fenders, seats, handlebars and would have to have the brand name “challenger” on the tires’. As a result of the decision being a once off we find that relevant costing should be used to make a decision. Assumptions
There are five assumptions of relevant costing they are listed below and how they apply: 1. That the decision being made won’t harmfully affect the existing cash flow. The existing cash flow of Baldwin’s has been “falling the last two years” so the opportunities that the new contract is offering could maximise the future cash flow. 2. There is no better opportunity and there won’t be in the time period that is being offered. Susanne is aware that the “bicycle boom” is over and also that the poor economy was effecting the company sales therefore, no better opportunity is likely to present itself in this time period 3. There is no better offer and this one will give the best financial contribution. Susanne hasn’t had any better offers and her balance sheet has shown that her “sales volume had declined in the last two years”. The new contract from Hi-Valu could increase this sale volume and therefore, give the best...