Baldwin Bicycle Company Case Study

1608 Words Aug 8th, 2006 7 Pages
Read through the Baldwin Bicycle Case materials and answer the following questions.

1. Based on the income statement for 1992 and the information in item 5 of exhibit 2 that the company sold 98,791 bicycles for 1992, how much was the average per unit sales price, average per unit cost of sales, and average gross margin per bicycle

2. If the yearly fixed manufacturing overhead costs of Baldwin are $1,500,000, and the total cost of sales are as listed in the 1982 income statement, what is the amount of total manufacturing costs that are variable?

3. What are the variable manufacturing costs per unit for the standard Baldwin bicycle?

4. What is the per unit contribution margin (sales price -variable costs) of the standard Baldwin bicycle.
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However, Hi-Valu would agree to take title to any bicycle that had been in one of its warehouses for four months, again paying for it within 30 days. Mr. Knott estimated that on average, a bike would remain in a Hi-Valu regional warehouse for two months.

Second, Hi-Valu wanted to sell its Challenger bicycles at lower prices than the name-brand bicycles it carried, and yet still earn approximately the same dollar gross margin on each bicycle sold--the rationale being that Challenger bike sales would take away from the sales of the name-brand bikes. Thus, Hi-Valu wanted to purchase bikes from Baldwin at lower prices than the wholesale prices of comparable bikes sold through Baldwin's usual channels.

Finally, Hi-Valu wanted the Challenger bike to be somewhat different in appearance from Baldwin's other bikes. While the frame and mechanical components could be the same as used on current Baldwin models, the fenders, seats, and handlebars would need to be somewhat different, and the tires would have to have the name Challenger molded into their sidewalls. Also, the bicycles would have to be packed in boxes printed with the High-Valu and Challenger names. These requirements were expected by Ms. Leister to increase Baldwin's purchasing, inventorying, and production costs over and above the added costs that would be incurred for a comparable increase in volume for Baldwin's regular products.

On the positive side, Ms. Leister was
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