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MAC-II Group Submission – Baldwin Bicycle Case

Question 1 The find relevant costs to decide on whether to manufacture for Hi Valu, we must consider only those that occur in the future and differ for each feasible alternative. These relevant costs should be compared to the current situation at Baldwin. Materials Direct Labour Overheads Total variable costs $39.8 $ 19.6 $9.8 $69.20 per unit

Projected unit revenue from Hi-Valu = $ 92.9 So unit contribution = $23.09 Total contribution for 25,000 units = $577250 From this we will have to deduct potential losses due to cannibalization, as well as one time costs. Currently, average unit revenues = $ 110.05 Unit cost (for current production) = $ 71.67 (using cost of sales value to calculate this figure) Current contribution per unit = $ 38.39 So lost contribution = 38.39 x 3000 = $ 115170 One time design costs = $ 5000 Net relevant revenues = $ 457080 Question 2 As discussed above, expected impact in sales is the loss in sales of 3000 units, which in turn reduces net contribution by $ 115170 Question 3 Costs needed for drawings for new parts to the bike are one time costs. They are about $2500 per person per month, needing two person months. So one time costs are $ 5000.

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Submitted by: Group 13, Section A – Prabhanshu Uchchana, N. Saikumaar, Yagna Srikanth, Mohan MS, Sudhir Ambekar, Rajesh Kumar Acha

80 WIP for 1000 bikes @ $54. etc.2% Total Asset costs $ 7355. These additional costs can be calculated as 23% of financing the additional assets that Baldwin will add if it accepts Hi Valu’s offer.MAC-II Group Submission – Baldwin Bicycle Case Question 4 Additional asset costs are those associated with WIP and Inventory.38 Cost of funds @ 11.00 $ 192.81 $ 77231.05 + $ 2307250 = $ 12847949.37 $ 5148.25. Saikumaar.6% Labor and Equipment @ 6% Pilferage @ 2.9 = $ 9896946.333.90 Total relevant assets $ 165833.74 Cash required per month = $ 75521.33 $54.00 $ 34.537 Record keeping @ 1% State Property tax @ 0.50 Finished goods for 500 bikes @ $69.36 Question 5 From the previous question. Rajesh Kumar Acha . Mohan MS.7% Insurance @ 0.00 $ 735.83 2 Submitted by: Group 13.5% = $ 93468.22 $ 44132. Total relevant assets = $ 812.000 bikes for 2 months @ $69.270.98 Considering loss of 3000 units in sales.500.38 Net relevant asset costs = $ 906236.20 Recievables for 30 days @ $ 92. Yagna Srikanth.768.05 Cost of goods sold = 95781 * $81. N.05 + 25000 * 92.20 Goods at Hi-Valu . Sudhir Ambekar.76 $ 4413.29 = $ 10540699. those additional assets as given below: Materials for 2 months for at $39.00 $288. inventory costs.43 + 25000 * 83.600. Section A – Prabhanshu Uchchana. Projected revenue = 95781 * 110.2 $ 16181.

MAC-II Group Submission – Baldwin Bicycle Case Gross Margins = $ 2951002. So unless Hi-Valu offers better terms.01 PAT = $ 322381. Baldwin is better off not accepting the proposal. even though this might earn it notional profits for the next year. Rajesh Kumar Acha . Already it is leverage by nearly 1. Yagna Srikanth.95% Return on Equity = 10. Baldwin company’s strategy seems to be to target all segments of bicycles. the company would be adding incremental revenue.39% Question 6 Currently. Question 7 Given that it is strategically not advisable. 3 Submitted by: Group 13. Section A – Prabhanshu Uchchana. One of the main reasons is the stiff credit and inventory terms imposed by Hi-Valu. Baldwin would try to re-align itself as a discount price bicycle manufacturer.21 Return on Sales = 2. By accepting the proposition. Mohan MS. On the flip side. Saikumaar.22 Other expenses = $ 2354000 (assuming constant) Income before taxes = $ 597002.5 times. Baldwin must not accept the proposal.22 Income tax expense = $ 274621. Sudhir Ambekar. Manufacturing a major portion of its output for Hi Valu’s sport bikes would seem to be a contrarian approach to its current strategy. as it would be using unutilized capacity.5% Return on Assets = 3. which would necessitate Baldwin to borrow more. N. for which it lacks the economies of scale.

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