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Baldwin Bicycle Company: Jo Rdan Jefferso N Mitra
Baldwin Bicycle Company: Jo Rdan Jefferso N Mitra
I. Case Facts
Exist for almost 40 years. Sales were made thro ugh independent stores and bicycle shops.
Suzanne Leister, marketing vice-president was approached by Mr. Knott Hi-Valu’s buyer of
sporting goods about the possibility of supplying bicycles.
If agreement could be reached on prices, Hi-Valu would sign an exclusive contract with Baldwin
for three years. The contract is renewable unless either of the party express his will to
discontinue.
All variable cost are differential and primarily used in the decision analysis.
The proposal of Hi-Valu will increase Baldwin’s sales volume however this will result to
a higher purchasing, carrying and production cost that has a direct effect to it’s
profitability.
Net Added Contribution becomes an opportunity cost to Baldwin if the proposal turned down.
PROS: CONS:
1. Higher capacity utilization may 1. Hi-Valu product specifications entails
result to higher potential profits. higher production cost, purchasing cost
and inventorying cost.
2. Eliminates exposure to risk 2. Opportunity costs due to loss sales
caused by the poor economy. from regular customers.
Accepting
the Proposal
3. Cash flows issues while cash coming
3. Good market condition of Hi- in may be too slow to cover subsequent
Valu may equate the weak production runs.
market condition of Baldwin. 4. Current distribution channels may
4. Expansion due to additional drop its line and move to Challenger.
market segment.
PROS: CONS:
1. Preserved established 1. Decrease in sales resulted
relationships with the from poor economy.
dealers.
Reject the
Proposal
VII. Conclusion
Accept the proposal because of its interesting net added contribution that may yield
return to Baldwin Bicycle Company.
There will be no ethical issues unless both parties will be binded by stipulation about
specific parties. However, the case is silent about the manner of inventory title passage
but I assume that another stipulation will be made by both parties stating the procedures
and terms of payment.
-God Bless-