In addition to its Australian business, Big Red Bicycle is considering manufacturing a new range of cheaper bicycles in Indonesia. The following information is available: ● The Indonesian plant has capacity to manufacture 8,000 units. ● Big Red Bicycle’s strategic goal is to generate a pretax profit of $1,000,000 for the next financial year for Indonesian operations. ● Clients will pay a maximum of $500 per bicycle ● Possibility exists for move to Indian plant with capacity for 10,000 units. ● Market for bicycles is growing rapidly and BRB will be able to sell all unitsproduced. ● Limited ability to renegotiate costs with suppliers. ● Pricing and cost information is as follows. Bicycle price per unit $500 (excl. GST) Current variable costs per unit $250 Fixed costs $1,280,000 Complete the following. 1. On your response document, work out: a. how many units at current variable cost would need to be produced to achieve profit target (show calculations) b. what the variable costs per unit would need to be to achieve profit target at current manufacturing capacity (show calculations). 2. On your response document, make one written recommendation based on your analysis. To support your recommendation ensure you refer to the organisational needs or situation, and any analytical techniques used. You may also suggest possible actions for BRB to take depending on possible future scenarios. 3. On your response document, list three sources of information of possible use to complete this activity.
In addition to its Australian business, Big Red Bicycle is considering manufacturing a
new range of cheaper bicycles in Indonesia. The following information is available:
● The Indonesian plant has capacity to manufacture 8,000 units.
● Big Red Bicycle’s strategic goal is to generate a pretax profit of $1,000,000 for
the next financial year for Indonesian operations.
● Clients will pay a maximum of $500 per bicycle
● Possibility exists for move to Indian plant with capacity for 10,000 units.
● Market for bicycles is growing rapidly and BRB will be able to sell all
unitsproduced.
● Limited ability to renegotiate costs with suppliers.
● Pricing and cost information is as follows.
Bicycle price per unit $500 (excl. GST)
Current variable costs per
unit
$250
Fixed costs $1,280,000
Complete the following.
1. On your response document, work out:
a. how many units at current variable cost would need to be produced to
achieve profit target (show calculations)
b. what the variable costs per unit would need to be to achieve profit
target at current manufacturing capacity (show calculations).
2. On your response document, make one written recommendation based on
your analysis. To support your recommendation ensure you refer to the
organisational needs or situation, and any analytical techniques used. You
may also suggest possible actions for BRB to take depending on possible
future scenarios.
3. On your response document, list three sources of information of possible use
to complete this activity.
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