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1- Relevant increase on NFO, Revenues and Costs and possible cannibalization CM Challenger Bikes Revenue Variable Costs Material

Labour Overhead Total VC CM per unit Total CM 39.80 19.60 9.8 (40% of OH is variable) 69.20 23.09 577,250 (25.000 units estimated)

92.29

Cannibalization of Baldwin Bikes Revenue Variable Costs Total VC CM per unit Total One-time added costs

110.05 Sales Revenue/n bikes sold 81.43 Cost of Sales/n bikes sold 14.70 Less Fixed OH. 66.73 43.32 129,948 (3.000 units loss due to cannibalization) 5,000

Cost due to Added inventories Added inventories Materials WIP FG Total Cost

165833 25000 units/12 months * 2 months * 39.8$ material 39800 1000 units * 39.8$ material 46145 500 units*COGS 251,778 59,168 23.5 % of added inventories

Profit before tax Taxes Profit

383,134 (CM of Challenger bikes - Cannibalization - Onetime added costs- A 176,582 0.46 206,552

2/3- How might the proposal affect Baldwin's strategy and competitive position?

Price Margin Selling price

Challenger Baldwin (discount (retailer) chain) 110.05 92.29 40% 20% 154.07 110.75

We are selling almos the same product (slight changes) at different prices that position the product in different segmen

* 2 months * 39.8$ material

- Cannibalization - Onetime added costs- Additional costs due to added inventories)

at position the product in different segments.