Baldwin Bicycle Company - Case Solution
James S. Reece | Harvard Business Review ( TCG001-PDF-ENG ) | June 01, 2012 (Revision: 2023-08-27)
Abstract:
Suzanne Leister, the marketing vice president of Baldwin Bicycle Company, is considering outsourcing their production to a low-cost manufacturer. This case study allows students to analyze the costs and strategic implications associated with this decision.
Case Questions Answered
- What is the expected added profit from the Challenger line?
- What is the expected impact of the cannibalization of existing sales?
- What costs will be incurred on a one-time basis only?
- What are the additional assets and related carrying costs?
- What is the overall impact on the company in terms of (a) profits, (b) return on sales, (c) return on assets, and (d) return on equity?
- What are the strategic risks and rewards?
- What should Ms. Leister do? Why?
1.) What is the expected added profit from the Challenger line?
The expected added profit from the Challenger line is computed as follows:
| Revenue | 92.29 |
|---|---|
| Variable Costs | |
| Material | 39.80 |
| Labor | 19.60 |
| Overhead (24.50 x 40%) | 9.80 |
| Total Variable Costs | 69.20 |
| Unit Cost Contribution | 23.09 |
Added profit = unit cost x annual expected volume
= $23.09 x 25,000 bikes
= $577,250 added profit
2.) What is the expected impact of the cannibalization of existing sales?
The expected impact of cannibalization of existing sales is…
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