u to use in her initial analysis; this information is summarized in Exhibit 2. Assignment i. what is the expected aded profit from theChallenger line?'-J' 2. What is the expected impact of cannibalization of existing sales? o Lo 3. What costs will be incurred on a one-time basis only? 4. What are the additional assets and related carrying costs? s. What is the overall impact on the company in terms of (a) profits, (b) return on sales, (c) return 6. 7. on assets, and (d) return on equity? What are the strategic risks and rewards? What should Ms. Leister do? Why? BALDWIN BICYCLE COMPANY Exhibit 1. Financial Statements (thousands of dollars) Balance Sheet (as of December 31) Assets Cash Accounts receivable Inventories Plant and equipment (net) Liabilities and Owners' Equity Current liabilities $342 1359 2.756 3635 $8,092 $3.478 Non-current liabilities 1512 4,990 3,102 $8,092 Total liabilities Owners' equity INCOME STATEMENT For the Year Ended December 31 Sales revenues Cost of sales Gross margin Other expenses Income before taxes Income tax expense Net income $10,872 8045 2,827 2.354 473 218 $255 Exhibit 2. Data Pertinent to Hi-Valu Proposal Notes Taken by Suzanne Leister 1. Estimated first-year costs of producing Challenger bicycles (average unit costs, assuming a constant mix of models): Materials Direct labor Overhead (@ 125% of direct labor) $39.80 19.60 $83.90 Includes items specific to models for Hi-Valu, not used in our standard models. Accountant says about 40 based on volume of 100,000 bicycles per year. percent of total production overhead cot is variable: 125% of DLS rate is Baldwin Bicycle Company June 2012 2 of 3 u to use in her initial analysis; this information is summarized in Exhibit 2. Assignment i. what is the expected aded profit from theChallenger line?'-J' 2. What is the expected impact of cannibalization of existing sales? o Lo 3. What costs will be incurred on a one-time basis only? 4. What are the additional assets and related carrying costs? s. What is the overall impact on the company in terms of (a) profits, (b) return on sales, (c) return 6. 7. on assets, and (d) return on equity? What are the strategic risks and rewards? What should Ms. Leister do? Why? BALDWIN BICYCLE COMPANY Exhibit 1. Financial Statements (thousands of dollars) Balance Sheet (as of December 31) Assets Cash Accounts receivable Inventories Plant and equipment (net) Liabilities and Owners' Equity Current liabilities $342 1359 2.756 3635 $8,092 $3.478 Non-current liabilities 1512 4,990 3,102 $8,092 Total liabilities Owners' equity INCOME STATEMENT For the Year Ended December 31 Sales revenues Cost of sales Gross margin Other expenses Income before taxes Income tax expense Net income $10,872 8045 2,827 2.354 473 218 $255 Exhibit 2. Data Pertinent to Hi-Valu Proposal Notes Taken by Suzanne Leister 1. Estimated first-year costs of producing Challenger bicycles (average unit costs, assuming a constant mix of models): Materials Direct labor Overhead (@ 125% of direct labor) $39.80 19.60 $83.90 Includes items specific to models for Hi-Valu, not used in our standard models. Accountant says about 40 based on volume of 100,000 bicycles per year. percent of total production overhead cot is variable: 125% of DLS rate is Baldwin Bicycle Company June 2012 2 of 3