Accounting And Finance Group Project: Analysis of Sports City Order

INTERNAL MEMO
Ref: ……………….
Date:
From: Donald Trump (intern)
To: Hans Brinker
Cc: Wilbur Brinker
Subject: Analysis of Sports City Order
This memo is to inform you of my findings and recommendations following the offer made by Sports City to purchase from us 50 bikes for $200 for three months and if the bikes perform very well in their store, they would extend the contract to 6 months and increasing the order size to 75 under the same terms. After in-depth analysis of the deal and the advantage it would give to our business, I found it to be misaligned with our operational and strategic goals. It is not any profitable in the 3-month or six-month deal and it hurts the company’s brand or rather obliterates it from the market. Below is a detailed breakdown of my findings and recommendations and an appendix to support my calculations.
First, the new offer if accepted will not offer any increase in profitability. The variable price for producing each bike is $100 and according to the deal the selling price is $200. From this deal, the contribution revenue will be $100 for each bike and for 50 bikes every month, it will amount to $5,000. This is the same contribution cost the business is currently making. Assuming that Sports City extends their order by six months with 75 bikes for every month, it might be not be any more profitable for the business because of increase in labor cost. At the moment, Quinn can make the 50 bikes because he can assemble and test two bikes per day. If he works for 25 days, he can meet the order placed by Sports City for the first three months. At the current remuneration rate of $15 per hour, 8 hours a day and 25 days a week, Quinn roughly takes home $3,000 per month. If the order is increased to 75, the business will have to order another employee who if hired at the terms as Quinn, the ...