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Baldwin Bicycle Company – Case Solution

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.

​James S. Reece
Harvard Business Review (TCG001-PDF-ENG)
June 01, 2012

Case questions answered:

  1. What is the expected added profit from the Challenger line?
  2. What is the expected impact of the cannibalization of existing sales?
  3. What costs will be incurred on a one-time basis only?
  4. What are the additional assets and related carrying costs?
  5. 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?
  6. What are the strategic risks and rewards?
  7. What should Ms. Leister do? Why?

Not the questions you were looking for? Submit your own questions & get answers.


Baldwin Bicycle Company Case Answers

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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