Managerial Accounting (AF 211)

Course Project
For this semesters course project, you have to analyze the following case:

Brinkers Bicycle Shop: A Special Order Decision

Your analysis should include the following steps, to the extent logical and possible, given
the character of the case:

Identify and describe or explain the problem that the managers of the organization
in question are encountering. What has happened to make the managers realize
that the problem has arisen? What is the likely cause of the problem? Why is the
problem important?
Analyze the problem, using tools and concepts that we have been studying, as
well as your general business and management knowledge. Analyze the situation
from a quantitative perspective, using the data available in the case, and from
operational, qualitative and strategic perspectives. Use diagrams/tables to
conduct your analysis and to report your findings. Your analysis should show that
you can use these tools and concepts and the language of management accounting
correctly and articulately.
Draw conclusions regarding the nature of the problem and possible solutions, and
develop recommendations for the managers in question.

Write a memorandum to the organizations managers that summarizes your analysis,

findings and recommendations. The memo should contain:

An introductory paragraph which explains the purpose of the memo and

summarizes the analysis that you have conducted, your findings and your
recommendations.
One or more paragraphs that describe and explain in some detail the problem(s)
that you have identified, the analysis that you have conducted, your findings and
conclusions, and your recommendations. If you have made any assumptions in
conducting your analysis, be sure to state them clearly and to justify them. Also,
be certain to describe any limitations of your analysis, for example, data which is
not available but would be useful.
The memo itself should only be a few pages. Attach one or more appendices that
include diagrams and tables, for example, your spreadsheet analysis, to support
your analysis and conclusions. Present and number the diagrams/tables in the
order in which you refer to them in the body of your memo.
The memo and appendices should have professional tones and writing styles and
must be typed.

This is a group project. You will be assigned in a group of up to three students.

Managerial Accounting (AF 211)

Brinkers Bicycle Shop: A Special Order Decision
This offer is the greatest thing thats happened to us since we started this business!
-- Hans Five-speed Brinker, founding partner, Brinkers Bicycle Shop
Just slow down a minute, Five ... there could be a lot more to this decision than first
meets the eye
-- Wilbur Brinker, founding partner, Brinkers Bicycle Shop
Hans and Wilbur Brinker turned their passion for tinkering with bikes, building
customized bicycles, and racing into their own bicycle shop just two years ago. They
currently produce: a standard model five-speed bicycle for amateur touring and racing,
customized versions of that bicycle for more serious racers, and customized mountain
and sand bikes. The standard model has become well known for its value, that is, for its
high quality and reasonable price. It now accounts for nearly half of the shops monthly
sales. The following table contains details regarding the standard models sales, costs and
revenues.

The Brinkers also provide high quality, reasonably priced customization and repair
services. The Brinkers monthly sales are finally generating enough contribution margin
to cover the shops fixed costs and leave a small but reliable positive net operating
income. In fact, the Brinkers are doing so well that they are on the verge of needing more
shop and storage space. The business next door is willing to rent them a suitable space
for $600 per month.
The Brinkers currently employ one full-time employee, Orville Quinn, to assist in
organizing parts before assembling bicycles, assembling the bicycles themselves, and
testing newly assembled bicycles for performance quality, as well as serving customers.
In addition to collaborating with customers on their bicycles designs, Quinn takes orders
and takes customers for trial rides. Brinkers employ Quinn for eight hours per day, 25
days per month, at $15 per hour. On average, it takes about four hours to carry out all of
these activities for a given sale, so Quinn can be considered able to assemble and test
about two bicycles per day.

As evident from the quotes above, Five-speed and Wilbur Brinker are beginning to
discuss an offer that they have just received from a small, local retail chain of sporting
goods stores, Sports City. Sports City would like to purchase fifty of the standard model
five-speed bicycle per month under a three month contract for $200 per bike. The bikes
would be produced in three colors unique to Sports City and bear the Sports City logo.
Sports City, in turn, would sell the bikes in their stores for $250 each. If the bikes sell
well, Sports City will likely offer the Brinkers a second six-month contract for 75
bicycles per month under the similar terms.
Should the Brinkers accept this offer right away? What quantitative factors and what
operational, qualitative or strategic factors should Five-speed and Wilbur take into
account in making this decision?
Imagine that you are a summer intern working for the Brinkers. Please conduct an
analysis of this situation and develop a recommendation for the Brinkers. Then write a
memorandum to Hans and Wilbur Brinker in which you characterize the problem that
they are encountering and identify its causes, summarize the analysis that you have
conducted, and make your recommendation. Please support your analysis with pertinent
tables or exhibits.