Baldwin Bicycle Company Magerial Accounting
Essay by Prettybossiie Cassiie • July 20, 2019 • Case Study • 1,255 Words (6 Pages) • 3,611 Views
Cassandre Espady
Managerial Accounting
2/23/2019
26-4 case
PROBLEM STATEMENT
The objective of this study is to discern if Baldwin Bicycle Company should accept or reject Hi-
Valu Stores Inc.’s offer?
1.Would it give Baldwin increase in profit whichever decision they choose?
ANSWER TO CASE QUESTIONS
This study will try to answer the following questions from Baldwin Bicycle Company Case:1. 1.What is the expected profit from the Challenger line?
Contribution per bike
Revenue $92.29
Variable costs
Materials $39.80
Labor 19.6
Overhead 9.8
Total variable costs $69.2
Unit cost contribution $23.09
Unit cost x annual expected volume = total contribution
$93.09 x 25,000 = 577,250
2.What is the expected impact of cannibalization of existing sales?
Sales price per unit (2,827 / 10,872) = 26%
Materials $39.80
Labor 19.6
Overhead 24.5
Total variable costs $83.90 / 74% * = $113.38
*83.90 (Baldwin cost of producing the bike)
* 100% (Total Sales) - 26 % (Gross margin ratio of BBC) = 74% (for markup)
Variable costs 69.2
Contribution margin 44.18
Loss annual volume 3,000
Total loss contribution 132,540
*Gross Margin - is a company's total sales revenue minus its cost of good sold (COGS), divided by total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells.
3.What costs will be incurred on a one-time basis only?
The one time added cost that will be incurred is $5,000 labor cost for the drawingand arranging of resources. This cost, however is insignificant since it can still be
performed by Baldwin Bicycle’s employees
4.What are the additional assets and related carrying costs?
Materials (2 months supply) (25,000 / 12 * 2) * (39.80 * 23% (asset-related cost(annual vc))=9,538.47
1,041.67 or1,042 = 9.154
Work-in-process (19.60 (Direct labor) + 9.80 (Overhead (variable) * (50%) * (39.80(Materials) =9,265
1,000 (Units is the total) * (17% asset-related costs less inventory-handling labor and equipment Finished goods (500 * (39.8 + 19.6 + 9.8) * 23% (asset-related costs)= 7,958
26,761.47
Finished goods at Hi-valu (25,000 /12) * 2 * (69.20) (13.5% (pre-tax & recordkeeping)) =38,925
Hi-valu receivables (25,000 / 12)(92.99) (13.5%) =25,957
Total asset holding cost =120,247
5.What is the overall impact on the company in terms of:
a. profits
Contribution from Hi-valu (from #1) 577,250
Less: Loss contribution from regular bike sales (from #2) 132,540
Added asset holding cost (from#4)12,247
Income before taxes 324,463
Income tax expense (46%) * 149,252.98
*1 / IBT (Income before tax * tax = income tax expense) 1 / IBT
*1 /IBT (Income before tax * tax = income tax expense) 1 / IBT
1 / 324, 463 * tax = 149,252.98) 1 / 324, 463)
*Tax = Income tax expense / income before tax
Income after tax $175,210.02
b.return on sales
Decline Accept
(in '000) | 1989 | Alternative 1 | Alternative 2 | Change |
Sales | 10,872 | 11,338 | 13,305 | 1,967 |
Cost of Sales | 8,045 | 8,143 | 9,665 | 1,522 |
Gross Margin | 2,827 | 3,195 | 3,640 | 445 |
Other expenses | 2,354 | 2,354 | 2,474 | 120 |
Income before taxes | 473 | 841 | 1,166 | 325 |
Income tax expense | 218 | 388 | 537 | 149 |
Net income | 255 | 453 | 629 | 176 |
Return on Sales | 2.35% | 4.00% | 4.73% | 0.73% |
Alternative 1
Cost of Sales (8,045 / 98,791) * 100,000
Alternative 2
Cost of Sales (81.43 * 97,000) + (69.20 * 25,000) + 36,690
c. return on assets
Decline Accept
(in '000) | 1989 | Alternative 1 | Alternative 2 | Change |
Assets | 8,092 | 8,545 | 8,721 | 176 |
Net income | 255 | 453 | 629 | 176 |
Return on Assets | 3.15% | 5.45% | 7.48% | 2.04% |
d. return on equity
Decline Accept
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