Baldwin Bicycle Company manufactures bicycles for almost 40 years. In 1989, their product lines included 10 models ranging from a small beginner's model with training wheels to a deluxe 12-speed adult's model. Their annual sales rate was currently at around $ 10 million. They sell their bikes through independently owned toy stores and bicycle shops.
             The Baldwin Bicycle Company recently received an offer from Mr. Karl Knott, the sporting goods buyer for Hi-Valu Stores. Hi-Valu operates a chain of discount department stores in the Northwest region. Mr. Knott talked to Ms. Suzanne Leister, the marketing vice-president of Baldwin Bicycle, on the possibility of Baldwin Bicycle producing bicycles for Hi-Valu Stores The Bicycle would carry the name "Challenger".
             The proposal included the following terms: 1) Hi-Valu must have ready access to a large inventory of bicycles; 2) Hi-Valu will sell the Challenger bicycles at lower prices than the name brand bikes it carried yet still earn approximately the same dollar gross margin on each bicycle sold; and 3) Hi-Valu wanted to modify the appearance of the Challenger bike from other bicycles produced by Baldwin.
             There were two considerations that made Ms. Leister do preliminary financial analysis. One, the requirements by Hi-Valu would result to an increase in Baldwin's purchasing, inventory and production costs over and above the added costs that will be incurred for a comparable increase in volume for regular products. Two, Baldwin's sales volume has been falling for the past two years due to the flattening out of the "bicycle boom". Their plant was currently operating at only 75% on a one-shift capacity.
             Should Baldwin Bicycle Company accept Hi-Valu's business proposal? After Ms. Leister's financial analysis and the proposal proved to be profitable for Baldwin Bicycle Company then the proposal should be accepted. And since Baldwi
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