Baldwin Bicycle Company

© 1996
ISBN 0-538-88991-8

Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 4 pages in length and its case teaching package is 12 pages.

Abstract

This case looks at a "private label" opportunity for a small "mid-market" bicycle manufacturer. Analysis of the problem requires a blending of financial, marketing, and strategic considerations.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We use this case in an unusual way. We assign it for day 1 of the required managerial accounting course. We also distribute the teaching commentary in advance.

Study Questions

1. What is the "relevant" cost of manufacturing a Challenger bike?
2. What is the "relevant" cost (on a per-bicycle basis) of carrying the working capital investment involved in the Challenger deal?
3. Should the Challenger deal be charged for the lost sales of bikes through the regular distribution channel ("erosion" or "cannibalization" cost)? If so, what is the "relevant" erosion charge?
4. Can you estimate the incremental return on investment for the Challenger deal?
5. What are the major cash flow implications of the Challenger deal?
6. How would you describe Baldwin's financial situation at the end of 1982?
7. How would you describe Baldwin's strategic position at the end of 1982? Is the Challenger deal a good strategic fit for Baldwin?