Baldwin Bicycle Company is its ain independent bike store that has been in concern for about 40 old ages. Last twelvemonth Baldwin had sold 98,791 motorcycles which accounted for about $ 10 million in gross revenues for 1982. Suzanne Lesiter is the selling Vice President of Baldwin and has merely been offered a proposition from Karl Knott, a purchaser from Hi-Valu to perchance get down bring forthing motorcycles for them. Baldwin had ne’er conducted any concern with a concatenation section such as Hi-Valu since it was use to its ain independent retail merchants. There were three conditions that must be met in order for the trade to be made between the two companies. The first status is that Hi-Valu wants to hold ready entree to a big pool of stock list, but didn’t want ownership of the bikes till it reached its shops or would go through the four month deadline of being held at their regional warehouses.

Hi-Valu would so hold 30 yearss to pay Baldwin. When looking at this new system of stock list, Baldwin will be adding new costs that have to cover with the regional warehouses of Hi-Valu. These plus related costs include record maintaining costs of $ 7,156.38, stock list insurance of $ 2,146.91, province belongings revenue enhancement of $ 5,009.46, inventory-handling of $ 22,066.13, and pilferage of $ 3,578.13. These relevant costs add up to about $ 39,957.07. Baldwin must besides add other plus costs for the manner the stock list system is being run. Baldwin will non anticipate to demo any gross revenues for at least the first two months sing most of their motorcycles will be at the regional warehouses.

Even after they have been transported to one of Hi-Valu’s shops or have reached the four month deadline, Baldwin still has to wait an extra 30 yearss for their payment from Hi-Valu. These excess variable costs include stuffs for two months at $ 165,833.33, Work in Progress at $ 34,600, Finished Goods at $ 34,600, Goods at Hi Valu at $ 288,333.33, and the wage period of 30 yearss for the Accounts Receivable at $ 192,637.50. As a whole there are plus related costs of $ 755,594.57. This outweighs the relevant gross that is gained from the “Challenger” series which makes for high capital investings which seem really hazardous. The fact that Baldwin must pay involvement on the stock list besides adds extra costs which skyrocket the relevant cost up to $ 1,427,419.15 at the worst instance scenario of four months.