Company Case Study: Baldwin Bicycle Company

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Baldwin Bicycle Company (Baldwin) produces and distributes bicycles to independently owned toy stores and bicycle shops, from which it earns roughly $10 million in sales revenue annually. It offers a number of designs with 10 models suited for different users and its products are perceived as above average in quality and price but not "top of the line." Due to the poor economy, the bicycle industry plateaued and Baldwin’s sales continuously declined for the past two years. As a result, the company was only able to utilize its plant at 75% of one-shift capacity.

Hi-Valu Stores, Inc (Hi-Valu) operates a chain of discount department stores. Its sales volume has increased to the extent that they are now considering the addition of “house-brand” products …show more content…

These are differential costs. Since they have maintained the same designs for years, it is assumed that developing designs is not part of Baldwin’s ordinary course of business hence, accepting the proposal would require them to hire designers.

Holding Costs. The incremental holding cost of inventory includes costs that are directly attributable to the inventory from the Hi-Valu deal. Analysis on the applicability of holding costs in this inventory is divided into two:
Baldwin’s Warehouse: The inventory handling labor and equipment costs are not considered in the asset-related costs applicable to WIP since these are still being accounted for as direct labor.

Hi-Valu Warehouse: Meanwhile, in Hi-Valu, state property tax on inventory (SPTI) and inventory handling labor and equipment costs are excluded in the asset-related costs applicable to the total inventory. The rationale for the omission of SPTI is that US Taxation laws implement SPTI based on possession rather than ownership. The latter, on the other hand, is removed because the product is not within the possession of Baldwin thus, Hi-Valu will shoulder the maintenance, security, and other related costs of handling the

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