Baldwin Bicycle Case Study

Baldwin Bicycle Case Study

1. The relevant costs are those that occur in the future and differ for each feasible alternative. These relevant costs should be compared to the current situation at Baldwin in order to evaluate the decision to join with Hi-Valu:

Per units cost $83.90

R&D Cost (5000/25000) 0.2

Other variable costs** 18.44

Total $102.54

** 5.5% of assets

Added estimate of monthly inventory cost to balance sheet info to estimate avg assets

2 months materials

(25000 bikes/12 mo x 2 mo inv) x 38.90 $165,847

WIP inv (1000 x 83.90) 83900

Finished Goods (500 x 83.90) 41950

Inc to assets 291697

Current assets 8092000

Assets est 8383697

x.055 461103

divided by 25000 bikes 18.44

2. Cost of capital = 18% 102.54

cost per bike times 25000 bikes 25000

2563500

0.18