ANALYSIS OF THE CASE FACTS

These are the questions from the case. What is the expected profit from the Challenger?

In getting the total variable cost we must add the Materials 39.8, Labor 19.6 and overhead 9.8 which is
69.2 these are already Given in data pertinent to hi-valu proposal notes by Ms Leister. No.1

The revenue is 92.29 from No.3 assumption the cost of bike deduct to total variable cost to get Unit cost
contribution of 23.09.

To get the Total contribution we multiply the given estimated volume of 25,000 ( again from no.3
assumption so 23.09*25000 = 577,250

THE STRATEGIC RISKS AND REWARDS – ACCEPT

REWARDS

1. Since Baldwin Bicycle have been independently owned toy store and bicycle shops and no
distributors. This is an opportunity for the company to provide department store chain.

2. Next, Baldwin company “bicycle boom” has flattened out and poor economy and caused
Baldwin’s sales volume to fall the past two years. So they can have sure order for 3 years despite
the poor economy

3. Their excess capacity can be used up to accommodate Hi-Valu.

RISKS

1. There are also risk for accepting Hi valu proposal. Additional competition with challenger bike
because the brand it carries is different “challenger”

2. It will be a loss of opportunity to enter the market using Baldwin Bicycle Company as the
brand

3. And present dealers might let fall ….

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THE STRATEGIC RISKS AND REWARDS – DECLINE

In opposite.. Rejecting the proposal also comes with rewards and risk

REWARDS such as

1. It can maintain loyal customers

2. No additional competition

3. And they can make new use of the idle capacity to make new products
RISKS

1. The Risk are Loss of the opportunity of additional profit

2. The idle capacity might continue

3. And possible continuous decline of sales of Baldwin Bicycle Company due to poor economy.