Baldwin Bicycle Company: Management Accounting
De La Salle University
Coll College of Business and Economics Ramon V. Del Rosario Sr. Graduate School of Business
Case Paper
On
Baldwin Bicycle Company
Submitted in partial fulfillment
For the requirements in
Management Accounting (ACC510M)
AY 2010-2011, 3rd Trimester
Submitted to:
Professor Jolly B. Cruz
Submitted by:
Presenting Group 5
Kelvin L. Go
Elmer V. Dela Cruz
Joshua G. Soriano
Jeffrey T. Tabangcura
Kristian Jewel P. Taiño
Grace Taguinod
26 February 2011
CASE BACKGROUND
Baldwin Bicycle Company (BBC) is a mid-range full-line bicycle manufacturing company with 40 years’ experience. BBC produced 98,791 units accounting for over $10MM in revenues in 1982, with an expected 100,000 units for the next three years. Distributed exclusively through independently-owned retailers and specialty bicycle shops, BBC bicycles are known for their above-average quality. In May 1983, a rapidly-growing Northwestern discount retail chain, Hi-Valu, approached Suzanne Leister, VP Marketing, and proposed a private-label agreement.
Under this new program, BBC would manufacture the Challenger™ line of bicycles exclusively for Hi-Valu. The Challenger line was to be a low-cost value bicycle, sold at retail prices under BBC’s normal product lines. This would result in expected cannibalization of an estimated 3,000 units but incremental sales of 25,000 units.
The terms of this proposal, however, deviate from standard practice. Hi-Valu insists that the bicycles be sold to them at a price lower than BBC’s normal distributor prices to preserve Hi-Valu’s margins. Further, bicycles would be shipped to Hi-Valu’s regional warehouses on consignment and paid only when 120 days had elapsed or the bicycle was shipped to a Hi-Valu store, whichever occurred first. Payment would then be Net 30 days.
Relevant cost analysis revealed that the Challenger deal could be a lucrative source of incremental revenues, since the
Coll College of Business and Economics Ramon V. Del Rosario Sr. Graduate School of Business
Case Paper
On
Baldwin Bicycle Company
Submitted in partial fulfillment
For the requirements in
Management Accounting (ACC510M)
AY 2010-2011, 3rd Trimester
Submitted to:
Professor Jolly B. Cruz
Submitted by:
Presenting Group 5
Kelvin L. Go
Elmer V. Dela Cruz
Joshua G. Soriano
Jeffrey T. Tabangcura
Kristian Jewel P. Taiño
Grace Taguinod
26 February 2011
CASE BACKGROUND
Baldwin Bicycle Company (BBC) is a mid-range full-line bicycle manufacturing company with 40 years’ experience. BBC produced 98,791 units accounting for over $10MM in revenues in 1982, with an expected 100,000 units for the next three years. Distributed exclusively through independently-owned retailers and specialty bicycle shops, BBC bicycles are known for their above-average quality. In May 1983, a rapidly-growing Northwestern discount retail chain, Hi-Valu, approached Suzanne Leister, VP Marketing, and proposed a private-label agreement.
Under this new program, BBC would manufacture the Challenger™ line of bicycles exclusively for Hi-Valu. The Challenger line was to be a low-cost value bicycle, sold at retail prices under BBC’s normal product lines. This would result in expected cannibalization of an estimated 3,000 units but incremental sales of 25,000 units.
The terms of this proposal, however, deviate from standard practice. Hi-Valu insists that the bicycles be sold to them at a price lower than BBC’s normal distributor prices to preserve Hi-Valu’s margins. Further, bicycles would be shipped to Hi-Valu’s regional warehouses on consignment and paid only when 120 days had elapsed or the bicycle was shipped to a Hi-Valu store, whichever occurred first. Payment would then be Net 30 days.
Relevant cost analysis revealed that the Challenger deal could be a lucrative source of incremental revenues, since the