Baldwin Bicycle Company Case Solution excel file

Question 1

Full cost basis Unit sales price Costs Profit per unit No. of units to be sold annually Total incremental profit

$ $ $

92.29 83.90 8.39 25000 $ 209,750.00

Question 2

Full cost basis Unit sales price

$

Costs Proft per unit No. of units expected to be cannibalised Total expected loss

$ $ $

110.05 81.43 28.62 3000 85,847.90

Question 4 Total additional materials (2 months) Materials carrying costs Additional work in process (1000, 50% completed) Work in process costs Additional finished goods (500) Finished goods carrying costs Finished Goods at Hi-Valu (2 months average) Finished Goods at Hi-Valu carrying costs Receivables from Hi-Valu (1 month average) Receivables from Hi-Valu carrying costs Total increase in assets Total increase in assets carrying costs

$ $ $ $ $ $ $ $ $ $ $ $

165,833.33 38,141.67 61,850.00 10,514.50 41,950.00 9,648.50 349,583.33 47,193.75 192,270.83 25,956.56 811,487.50 131,454.98

Question 5 a) Overall impact on profit Total incremental profit

$ 209,750.00

Total expected cannibalisation loss Total incremental carrying costs Net incremental profit/loss

$ 85,847.90 $ 131,454.98 $ (7,552.88)

b) Return on sales Existing RoS New RoS

2.35% 1.91%

c) Return on Assets Existing RoA New RoA

3.15% 2.78%

d) Return on Equity Existing RoE New RoE

8.22% 7.98%

Contribution margin basis (Assuming only variable costs are differential) Unit sales price $ 92.29 Materials $ 39.80 Direct labor $ 19.60 Variable overhead $ 9.80 Contribution margin $ 23.09 No. of units to be sold annually 25000 Total incremental contribution margin $ 577,250.00

Contribution margin basis (Assuming only variable costs are differential) Unit sales price $ 110.05 Variable costs (assuming same ratio as Challenger prodution) Contribution margin No. of units expected to be cannibalised Total loss of contribution margin

$ $

67.73 42.32 3000 $ 126,968.02