Baldwin Bicycles Case Management Accounting Part 1 : Relevant Cost of Manufacturing Challenger bicycle Particulars Material Labour Cost

Overheads Total Variable cost of manufacturing Sellling price per bicycle Contribution per bicycle Total number of Challenger bikes to be sold Total Contribution from Challenger bikes One time cost of design Net increase in profit from Challenger bikes Amount in $ $ 39.80 $ 19.60 $ 9.80 $ 69.20 $ $ 92.29 23.09

25,000 $ 577,250.00 $ 5,000.00 $ 572,250.00

Assumption : Current labor capicty meet the current demand and extra labor would be required to produce additional un One Time Cost will only be incurred in first year

to produce additional unit

Baldwin Bicycles Case Management Accounting Part 2: Relevant Cost of Carrying working capital investment on per bicycle basis a Total No. of Challenger bicycle unit expected to be sold during the year b Additional working capital investment required Average Inventory Particulars Material Work in progress Finished goods Warehouse inventory Total Inventory Investment Period (in months) 2 1000 500 2 No. of bikes Cost of Inventory (per unit) $ 39.80 $ 54.50 $ 69.20 $ 69.20 Working Capital Investment $ 165,833.33 $ 54,500.00 $ 34,600.00 $ 288,333.33 $ 543,266.67 25000 c

Receivables 1 Total Additional Investment in working capital Additional Investment per bicycle $ 29.32

92.29 $ 189,636.99 $ 732,903.65

Assumption : Inventory handling cost is incurred by Baldwin even when bicycles are stored in Hi-Value regional warehous

Cost of carrying the working capital investment Cost (% per $ value of asset) 18.00% 1.00% 0.30% 0.70% 3.00% 0.50% 23.50%

Particulars Pretax cost of funds Record keeping cost Inventory insurance State property tax on inventory Inventory- handling laborand equipment Pilferage, obsolescence, breakage Total Cost of Carrying investment

Inventory $ 97,788.00 $ 5,432.67 $ 1,629.80 $ 3,802.87 $ 16,298.00 $ 2,716.33 $ 127,667.67

Recievables $ $ $ $ $ $ $ 34,134.66 1,896.37 36,031.03

Total ########## $ 7,329.04 $ 1,629.80 $ 3,802.87 $ 16,298.00 $ 2,716.33 ##########

Carrying cost of inventory on per bicycle basis

6.55

Value regional warehouses.

Baldwin Bicycles Case Management Accounting Loss of regular sales volume due to Hi-Value Deal Computation of Erosion Charge Particulars Cost of good sold in 1982 Sales Volume in 1982 COGS per bike Fixed overhead cost allocation per unit Variable cost per bike Total Sales Revenue in 1982 Sales Volume in 1982 Selling price per bike Contribution per unit on regular bike sales Total Contribution Lost $ $ $ $ Amount 8,045,000.00 98,791.00 81.43 14.70 66.73 3000 per annum

$ 10,872,000.00 98,791.00 $ 110.05 $ $ 43.32 129,947.90

Baldwin Bicycles Case Management Accounting Profitability of Challenger Bikes 1 Contribution from Challenger Bike 2 Additional Carrying Cost of Inventory 3 Erosion charge due to loss of regular sales Net Incremental Contribution from Challenger Bikes Amount in $ 572,250.00 163,698.69 129,947.90 278,603.40 283,603.40 38.70%

Contribution per annum Incremental Investment per annum Return on Investment

283,603.40 732,903.65 38.70%

10 models of bicycle Annual sales Hi valu is currently not a customer Above average in price and quality but not a "top of the line" product Title of the bike When transferre from warehouse to store when stored in warehouse for four maonths Average inventory period Lower wholesale price for Baldwin to Hi valu Plant utilization Idle capacity Hi valu would buy only fron Baldwin for 3 years

$10 million

Payment in 30 days Payment in 30 days 2 months To maintain the same gross dollar margin 75% 25% Revenue from added volume sales

Material Labor Overhead* Total

Cost of producing Challenger bicycle (in $) 39.80 19.6 24.5 14.7 83.90

*Overhead is 125% of labor 40% of total production overhead cost is variable 125% of direct labor is based on volume of 100000 bicycle per year

Variable Cost of producing Challenger bicycle (in $) Material 39.80 Labor 19.6 Assumption: Current labor capicty meet the current demand Overhead* 9.8 and extra labor would be required to produce additional unit Total 69.20 Sales revenue per Challenger bike Contribution margin for Challenger bike No. of bike to be sold Total increase in contribution margin One time cost 5000 25000 577250 92.29 23.09

Variable cost of producing Baldwin bicycle Cost of goods sold 8045000 Bike sold 98791 COGS/bike 81.4345436 Fixed variable cost 14.7 Total variable cost 66.7345436 Sales revenue/bike 110.050511 Contribution margin 43.315967 Loss of sales of baldwin bike Total loss of contrbution margin Net change in contribution margin (first year) 3000 129947.9 442302.099

Sales in 1982 Sales revenue Selling price/bike Projected sales/year Loss of regular sales/year Effective sales of regular bike/year Loss of revenue for regular sales Hi valu sales/year Revenue from Hi-valu/bike Total revenue Current running capacity Full capacity Capacity unutilized

98791 10872000 110.0505 Assumption: Taking average pricing for all the 10 models 100000 without Hi valu deal 3000 because of Hi-valu deal 97000 with Hi-valu deal 330151.5 25000 92.29 2307250 75% 131721.3 32930.33 <25000

ng for all the 10 models

Capital investment Material 2 months Work in progress 1000bikes Finished goods 500 bikes Warehouse inventory 2 months Due payment 30 Days Total investment capital (average for the year) Investment capital per byke For inventory Total inventory capital investment Pretax cost of funds Record keeping cost Inventory insurance State property tax on inventory Inventory- handling laborand equipment Pilferage, obsolescence, breakage Total For recievable Recievable capital investments Pretax cost of funds Inventory insurance Total 189637 34134.66 1896.37 36031.03 543266.7 97788 5432.667 1629.8 3802.867 16298 2716.333 127667.7 165833.3 54500 34600 288333.3 189637 732903.7 29.31615

Total relevent cost of carrying the working capital investments

163698.7