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The discussion of Baldwin Bicycle Company case took a little longer in the previous class to
conclude. Therefore, I am enclosing the analysis in short for obtaining final findings. Any query
regarding this case will be taken up in forthcoming tutorial session along with problems of Chapter 7
and 10.
With best wishes,
Dr. Sandhya Bhatia
Revenue ........................................................................................................................................................................
$
92.29
Variable costs:
Materials ..................................................................................................................................................................
$39.80
Labor ........................................................................................................................................................................
19.60
Overhead ($24.50 * 40%) ........................................................................................................................................
9.80
69.20
Unit contribution ...........................................................................................................................................................
$
23.09
Times annual volume ....................................................................................................................................................
*25,000
Total contribution.....................................................................................................................................................
$577,250.00
2. Lost contribution from regular bikes:
=
=
=
=
=
$ 38,142
9,265
7,958
55,365
38,925
25,957
$120,247
One can take a stand that added materials would be financed by additional interest-free accounts payable.
Cost saving in taking 2 months payables would be 25,000*2/12*39.80*11.5%=19,070; making total
holding costs $120,247- 19,070= $101,177. Both approaches are correct.
5. Summary (assuming only variable costs are differential):